Tallinna Kaubamaja Grupp AS
Consolidated Annual Report 2015 (translation of the Estonian original) WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
TALLINNA KAUBAMAJA GRUPP AS CONSOLIDATED ANNUAL REPORT 2015
The main areas of activity of Tallinna Kaubamaja Grupp AS are retail and wholesale trade. At the year-end 2015, Tallinna Kaubamaja Grupp AS employed more than 4,000 employees.
Legal address: Gonsiori 2 10143 Tallinn Republic of Estonia Commercial Register no.: 10223439 Telephone: 372 667 3200 Fax: 372 667 3205 E-mail: [email protected] Beginning of financial year: 1.01.2015 End of financial year: 31.12.2015 Auditor: PricewaterhouseCoopers AS Bank: Swedbank AS SEB Pank AS Nordea Bank AB Estonian branch
Lawyer: Helen Tulve
Equity as at Ownership Subsidiaries and associates: Share capital 31.12.2015 interest Kaubamaja AS 25 TEUR 15,525 TEUR 100%
Selver AS 1,406 TEUR 26,496 TEUR 100% Kulinaaria OÜ 3 TEUR 4,815 TEUR 100% Selver Latvia SIA 285 TEUR -11,104 TEUR 100% Viking Security AS 134 TEUR 701 TEUR 100%
TKM Beauty OÜ 3 TEUR -106 TEUR 100% TKM Beauty Eesti OÜ 3 TEUR -245 TEUR 100% TKM Auto OÜ 3 TEUR 6,115 TEUR 100%
KIA Auto AS 114 TEUR 4,539 TEUR 100%
Viking Motors AS 223 TEUR 184 TEUR 100% Forum Auto SIA 14 TEUR -182 TEUR 100% KIA Auto UAB 3 TEUR 168 TEUR 100%
TKM King AS 32 TEUR -1,766 TEUR 100%
Tallinna Kaubamaja Kinnisvara AS 28 TEUR 143,517 TEUR 100% Tartu Kaubamaja Kinnisvara OÜ 3 TEUR 42,236 TEUR 100% SIA TKM Latvija 3 TEUR 5,100 TEUR 100%
Rävala Parkla AS 600 TEUR 3,557 TEUR 50%
The subsidiaries and associates Kaubamaja AS, Selver AS, Kulinaaria OÜ, Viking Security AS, Tartu Kaubamaja Kinnisvara OÜ, Tallinna Kaubamaja Kinnisvara AS, TKM Auto OÜ, TKM Beauty OÜ, TKM Beauty Eesti OÜ, KIA Auto AS, Viking Motors AS, AS TKM King and Rävala Parkla AS are registered in the Republic of Estonia. Selver Latvia SIA, SIA TKM Latvija and Auto Forum SIA are registered in the Republic of Latvia and KIA Auto UAB, in the Republic of Lithuania.
This consolidated annual report consists of the management report, the consolidated financial statements, the independent auditor’s report and the profit allocation proposal.
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 2 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
Table of contents
MANAGEMENT REPORT ...... 4 CONSOLIDATED FINANCIAL STATEMENTS ...... 24
MANAGEMENT BOARD’S CONFIRMATION OF THE CONSOLIDATED FINANCIAL STATEMENTS ...... 24 CONSOLIDATED STATEMENT OF FINANCIAL POSITION...... 25 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME...... 26 CONSOLIDATED CASH FLOW STATEMENT...... 27 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...... 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS...... 29 Note 1 General information...... 29 Note 2 Accounting policies adopted in the preparation of the financial statements ...... 29 Note 3 Critical accounting estimates and judgements ...... 37 Note 4 Risk management and description of key risks ...... 38 Note 5 Cash and cash equivalents ...... 42 Note 6 Trade and other receivables ...... 42 Note 7 Trade receivables ...... 43 Note 8 Inventories ...... 43 Note 9 Subsidiaries...... 44 Note 10 Investments in associates ...... 45 Note 11 Long-term trade and other receivables ...... 45 Note 12 Investment property ...... 46 Note 13 Property, plant and equipment ...... 47 Note 14 Intangible assets...... 51 Note 15 Interest bearing borrowings ...... 52 Note 16 Finance and operating lease ...... 53 Note 17 Trade and other payables ...... 54 Note 18 Taxes...... 54 Note 19 Share capital...... 55 Note 20 Segment reporting...... 55 Note 21 Other operating expenses ...... 57 Note 22 Staff costs ...... 58 Note 23 Finance income and costs...... 58 Note 24 Earnings per share...... 58 Note 25 Loan collateral and pledged assets...... 59 Note 26 Related party transactions...... 59 Note 27 Interests of the members of the Management and Supervisory Board ...... 60 Note 28 Shareholders with more than 5% of the shares of Tallinna Kaubamaja AS ...... 61 Note 29 Contingent liabilities ...... 61 Note 30 Financial information of the Parent ...... 61 INDEPENDENT AUDITOR’S REPORT ...... 66 PROFIT ALLOCATION PROPOSAL...... 68 SIGNATURES OF THE MANAGEMENT BOARD AND SUPERVISORY BOARD TO THE ANNUAL REPORT 2015 ...... 69 REVENUE ALLOCATION ACCORDING TO THE ESTONIAN CLASSIFICATION OF ECONOMIC ACTIVITIES (EMTAK) ...... 70
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 3 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
MANAGEMENT REPORT
2015 was the year of anniversary for Tallinna Kaubamaja Grupp AS (hereinafter: the Group). The company that was established 55 years ago has grown into one of the strongest retail groups in Estonia. The reporting year can be considered a financially successful year of stable growth and good internal developments that yielded satisfactory sales revenue and profit growth. In the reporting year, many planned and important developments were realised: a shopping and entertainment centre was completed in Viimsi, Selver e-shop was launched, our security business grew significantly and the construction plans of a new department store building in Tallinn were initiated. A new Selver store in Viimsi added sales space and a shop of L’Occitane quality natural cosmetics was opened in the Rocca al Mare centre. Optimisation of trade processes and improving of product selection continued. The Group invested altogether 20.5 million euros in 2015, whereas a year earlier, 9.1 million euros were invested. Besides the construction of the Viimsi centre, other important development projects of the financial year were the development of the Group’s e-commerce and renovation of Tartu Kaubamaja centre, which is now 10 years old. The objective of 2016 is to increase market share and profit. The key question in the retail market, where the competition has become intense in recent years, is good knowledge of customers and offering customers the best goods in their preferred way. It is necessary to provide an inspiring buying environment that satisfies the customer’s various needs and moves into various channels and provides a challenge with the construction of new sales premises and development of e- commerce. The situation of Estonian labour force puts a pressure on staff cost, which is why it is important to continue optimising operations and further digital development. The most important events for the Group in 2015 until the publication of this annual report were:
. In February, the subsidiary of the Group offering manned guard service, Topsec Turvateenused OÜ, was merged with Viking Security AS, a company acquired in 2014 designing, installing and maintaining electronic alarm, guard and surveillance systems. The business name of the merged company is Viking Security AS.
. In March, at the annual general meeting of the shareholders, the decision was made to adopt Tallinna Kaubamaja Grupp AS as the new business name of the Group.
. Kaubamaja reached its 55th year in business Tallinna Kaubamaja established in 1960 was the foundation for Tallinna Kaubamaja Group. The 55th anniversary of Kaubamaja was emphasised in the internal and external communication with special attention to the history of Kaubamaja and fashion of different eras.
. Kaubamaja refurbished the women’s beauty department in Tallinn sales premises showing now sparkling displays of exclusive quality brands and giving a facelift to the jewellery and watches area.
. In June, Torupilli Selver was renovated, and a SelveEkspress self-scan service and a larger selection of gourmet products were added.
. In July, Viking Security AS concluded an acquisition agreement of Digisilm Videovalve OÜ in order to expand video surveillance services.
. In August, the Group opened an entertainment and shopping centre in Viimsi on 14,000 square metres and with about 40 tenants.
. Selver also opened a new store with sales space of 3,500 square metres in the Viimsi shopping centre, which has been accepted very well by customers despite very tight competition in this region.
. In September, the Group opened the second L’Occitane store in Estonia next to the I.L.U. store in the Rocca al Mare centre.
. Selver’s self-scan solution SelveEkspress expanded further and now customers can use the SelveEkspress service already in 19 Selver stores. Self-service checkout systems in the grocery departments in Tallinn and Tartu department stores were also installed.
. Selver celebrated its 20th year in business.
. In 2015, Tallinna Kaubamaja Grupp AS was named the most competitive retail company in Estonia for the fourth year in a row and Selver was awarded the title of the best service and competitive retail chain.
. E-Selver was launched in November. The customers had been waiting for it for a long time, and it has now been warmly welcomed.
. In December, the Group’s security companies Viking Security AS and Digisilm Videovalve OÜ were merged with the aim of improving efficiency. The business name of the merged company is Viking Security AS.
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 4 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
Structure of the Group and its changes The main areas of activity of the entities of Tallinna Kaubamaja Grupp AS include retail and wholesale trade. The following segments may be differentiated in the activities of the Group:
. Supermarkets . Department stores . Car trade . Footwear trade . Real estate
The Supermarkets’ segment comprises the Selver store chain with 45 Selver stores, e-Selver and a café with a total sales space of 86,500 m². The segment includes also non-operational SIA Selver Latvia and Kulinaaria OÜ, which has the largest central kitchen in the Baltic countries. Kaubamaja operates two department stores, one in Tallinn and the other in Tartu city centre, offering a large selection of beauty and fashion products. The results of beauty product (I.L.U. and L’Occitane) sales, which includes eight stores, and the security segment are presented in the report of the department store segment. The footwear segment includes 28 ABC King and SHU shoe shops. The car trade segment is the importer of KIAs in the Baltic countries and is involved in the sales of passenger cars in two showrooms in Tallinn, one showroom in Riga and one in Vilnius. In addition to KIAs, there are several car brands, such as OPEL and Cadillac in Estonia and Peugeot in Latvia, in the selection. The real estate segment is involved in the management, maintenance and renting out of commercial space of real estate that belongs to the Group. The Group’s real estate segment owns the sales premises of Kaubamaja in Tallinn, Tartu Kaubamaja centre, Viimsi shopping centre, two car showrooms and 18 Selver buildings, and several land plots awaiting for development. Legal structure of Tallinna Kaubamaja Grupp AS as of 31.12.2015:
On 2 September 2014, Topsec Turvateenused OÜ, a subsidiary of Tallinna Kaubamaja Grupp AS, acquired a 100% share in Viking Security AS. Acquisition of the shareholding in Viking Security AS enables Tallinna Kaubamaja Grupp AS to further strengthen its security services, one of the most fast-growing business areas of the Group in recent years. As a result of the transaction, the service portfolio of Topsec Turvateenused OÜ will expand from manned guarding and video security to include services related to the design, installation and maintenance of electronic alarm, security and surveillance systems and the possibility of participating in certified security tenders. Merger resolutions of the Viking Security AS and Topsec Turvateenused OÜ were adopted on 20th of January 2015 and Commercial Register registered the merger on 26th of February 2015. On 8 July 2015, Viking Security AS acquired 100% of shares of Digisilm Videovalve OÜ. Through this transaction, Viking Security AS will enhance its services related to the design, installation and maintenance of electronic alert, surveillance and monitoring systems. In order to increase efficiency, the Group merged its security business under Viking Security AS. Merger resolutions were adopted on 17th of November 2015 and Commercial Register registered the merger on 23th of December 2015.
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 5 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
Economic development
According to the initial calculations of Statistics Estonia, the gross domestic production of Estonia increased by 1.2 per cent in 2015. Several unfavourable external factors had a negative impact on economic growth at the end of the year. The warm weather of the last quarter of the year kept prices as well as added value in the energy sector low. Demand for electronics was on a decline during the second half of last year due to the high level of the comparison base. Low price of oil on the world market hindered both production volumes and the sales prices of oil shale. The logistics sector was affected by low volumes of external trade, and production in the construction sector was limited by a decrease in construction as well as the continuing decline in reconstruction works. According to Statistics Estonia, the labour market of Estonia stabilised in the fourth quarter of 2015, and the rate of unemployment extended to 6.2 per cent for the year. While the increase of employment continued to grow slowly, labour productivity decreased due to the slowed economic growth. The simultaneous fast increase in wages decreased the ability of companies to compete with the prices of its products or services. According to the assessment of different analysts, the growth of gross domestic product supported by foreign demand will extend up to 2.6% in 2016. According to Statistics Estonia, the consumer price index decreased 0.5% in 2015 compared to the average in 2014. The factor that mostly influenced the annual change in the consumer price index was motor fuel price, which cheapened 13.9%. Other major factors that influenced the index were cheaper electricity and heat energy for households, respectively 4.3% and 3.9%, and prices of alcoholic beverages that went up 6.1%. According to analysts, the price growth will be quite moderate in 2016 remaining at the level of 0.3%. According to Statistics Estonia, the total retail business turnover in current prices grew 6.6% in Estonia in 2015. Retail sales grew most in specialised stores that sell mainly computers and their accessories, books, sports equipment, games, toys etc. (39.9%). Sales by post or internet (38.3%), sales in second hand goods shops and sales other than in stores (i.e. kiosks, markets, direct sale) grew more than average (27.5%). Retail sales in non-specialised stores (mainly foodstuff) increased on an average at a slower pace, showing a growth of 3.0% during the year. Retail sales in other unspecialised stores grew 6.7%. Sales of motor fuels at specialised stores, where the sales declined 7.0%, had a negative impact on retail sales. The consumer confidence index has been stable, supported by low unemployment rate, increased income, and no inflation.
Financial performance
FINANCIAL RATIOS 2011-2015 In millions of euros 2011 2012 2013 2014 2015 Revenue 436 468 499 535 555 Change in revenue 6% 7% 7% 7% 4% Gross profit 115 121 126 133 139 EBITDA 36 38 33 35 42 Operating profit 26 26 22 24 27 Profit before tax 25 25 21 22 26 Net profit 22 21 18 20 22 Change in net profit 29% -3% -16% 16% 9% Sales revenue per employee 0.143 0.140 0.140 0.140 0.141 Gross margin 26% 26% 25% 25% 25% EBITDA margin 8% 8% 7% 6% 8% Operating margin 6% 6% 5% 4% 5% Profit before tax margin 6% 5% 4% 4% 5% Net margin 5% 5% 4% 4% 4% Equity ratio 53% 51% 51% 51% 52% Return on equity (ROE) 16% 14% 11% 12% 13% Return on assets (ROA) 8% 8% 6% 6% 6% Current ratio 1.1 1.0 1.0 1.1 0.9 Debt ratio 0.5 0.5 0.5 0.5 0.5 Inventory turnover 7.9 7.7 7.4 7.4 7.1 Average number of employees 3,059 3,335 3,554 3,824 3,946
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 6 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
Gross profit = revenue – materials and consumables used Gross margin = gross profit / revenue EBITDA = profit before finance income/costs and depreciation EBITDA margin = EBITDA / revenue * 100% Operating margin = operating profit / revenue * 100% Profit before tax margin = profit before tax / revenue * 100 Net margin = net profit / revenue * 100% Revenue per employee = revenue / average number of employees Equity ratio = equity/ balance sheet total * 100% Return on equity (ROE) = net profit / average equity * 100% Return on assets (ROA) = net profit / average assets * 100% Inventory turnover (ratio) = COGS/ average inventories Current ratio = current assets / current liabilities Debt ratio = total liabilities / balance sheet total
The consolidated sales revenue of the Group was 555.4 million euros in 2015, a growth of 3.8% compared to the results of 2014 when the sales revenue was 535.0 million euros. The net profit of the Group was 22.1 million euros in 2015, which was better by 8.8% of the profit earned in the previous year. The year`s pre-tax profit was 26.0 million euros, showing a year-on- year growth of 15.4%. The net profit was influenced by the dividend payment, on which an income tax of 3.9 million euros was paid in 2015, whereas the year earlier, 2.2 million euros was paid as income tax. The year 2015 that offered stability and a strong growth in retail business was not equally generous to all retailing segments, leaving the fashion and foodstuff sellers with a smaller growth than average. Compared to Estonian statistics, we can still be satisfied with the Group`s sales revenue growth. We experienced a seasonal shift at the end of the year, a usual occurrence in recent years, resulting in a long warm autumn that lasted by the end of December. The latter reduced the expected revenue from the sale of fashion goods. The supermarket segment showed a continued strong sales growth with the help of the new Viimsi store and e-shop. The footwear trade segment that faces fierce competition achieved a significant sales growth despite unfavourable weather conditions at the end of the year. The car trade segment achieved a superb sales result, primarily with the help of sales campaigns; however, they resulted in a slight decrease in the margin compared to the reference base. The Group`s profit increased by 2.3 million euros on account of change in value of the assets of the real estate segment. In August, the Group opened a 14,000-square-metre Viimsi centre along with a new Selver store that has 3,500 square metres of sales space. In September, the Group opened a second Loccitane trademark shop in Estonia next to the I.L.U. store at the Rocca al Mare centre. In November, the Selver`s e-shop started it sales activity, which is the fourth e-shop of the Group in addition to Selveri Köök, Kaubamaja gift shop and I.L.U. e-shops. Currently, the most important ongoing development project is the further development of the Group`s e-trade platform. By the end of the year, the renovation of Kaubamaja`s Tallinn sales premises of the beauty department was completed; the renovation work had lasted for the last half-year and the department is now furnished with more sophisticated displays for exclusive cosmetics and has a more sparkly jewellery area. As of 31 December 2015, the amount of assets of the Group was 348.0 million euros, which is 1.5% higher compared to the end of 2014. The number of loyal customers exceeded 590,000 at the end of the accounting period, showing an annual decrease of 3.9%. The proportion of purchases by loyal customers in the turnover of the Group was 80.4% (the indicator was 80.9% in the 2014). Over 19,000 Partner bank and credit cards had been issued as of the end of December. Investments The Group’s investments in 2015 amounted to 20.5 million euros (9.1 million euros in 2014), with 20.0 million euros invested in property, plant and equipment and investment property. 0.5 million euros were invested in intangible assets. In the supermarket segment, 4.4 million euros worth of investments were made (in 2014, 2.9 million euros). Investments were made to open a new supermarket in Viimsi centre and to expand Torupilli Selver and renew its sales environment. Additionally, repair and refurbishing works were conducted in the stores, and fittings and computing equipment were purchased. In addition, the SelveEkspress SelfScan systems were added into several shops. The investments of the department stores segment amounted to 2.4 million euros (1.9 million euros in 2014), which were used to give the beauty departments of Kaubamaja a new fresh look and add the SelfScan systems to the grocery departments. In the car trade segment, 0.2 million euros worth of investments were made (in 2014, 0.6 million euros). In the footwear trade segment, the Group invested 0.1 million euros to improve the sales environment and check-out systems of the stores (0.6 million euros in 2014). Investments made in the real estate business segment amounted to 12.9 million euros (3.0 million euros in 2014). A shopping and leisure centre was built to Viimsi during the reporting period, and the renovation works of Tartu Kaubamaja centre were initiated. During the course of these works, both the interior and exterior look of the building will be changed. A registered immovable was also purchased in the small town of Peetri in Harju County.
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 7 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
Seasonality of business and risks
The operations of Tallinna Kaubamaja Group are not exposed to major seasonal fluctuations. As is common for retail trade, the sales revenue is about 10% lower in the first quarter and about 10% higher in the fourth quarter compared to the average sales revenue of quarters.
600 555 17% Tallinna Kaubamaja Group revenue 535 (in million euros) 15% 500 13%
400 11%
9% 300 7% 5% 5% 200 2% 5% 3% 4% 146 153 137 139 133 140 120 123 3% 100 1%
0 -1% 1q 2q 3q 4q Year
2014 2015 Revenue change % (y-o-y)
Tallinna Kaubamaja Group net profit (in million euros)
25,0 200% 22.1 20.3 150% 20,0
89% 100%
15,0 7% 50% 20% 9% 10% 10.0 10.6 10,0 0% 6.7 5.9 5.4 5.6 -50% 5,0
-100%
0,0 1q 2q 3q 4q Year -150% -0.6 -1.2 -5,0 -200%
2014 2015 Net profit change % (y-o-y)
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 8 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
It is possible to identify a certain structural change in the Group entities’ contribution to the results of operations by quarter.
Tallinna Kaubamaja Group revenue distribution for 2015 100% 2% 2% 2% 2% 10% 11% 90% 12% 10% 80% 70% 60% 70% 69% 68% 50% 69% 40% 30% 20%
10% 18% 17% 15% 19% 0% 1q 2q 3q 4q
Footwear trade Car trade Supermarkets Department Stores
The share of the real estate business segment is around 1% in all quarters and is not shown separately in the chart. Detailed description of The Group's risks and risk management principles is provided in Note 4 of the financial statements.
Business segments
Department Supermarkets Car Trade Footwear Trade Real Estate Group total stores In million euros 2015 2014 % 2015 2014 % 2015 2014 % 2015 2014 % 2015 2014 % 2015 2014 % External reve- 383.4 368.2 4.2% 95.6 92.5 3.3% 60.8 57.7 5.3% 11.9 13.4 -10.7% 3.7 3.3 12.6% 555.4 535.0 3.8% nue
EBITDA 14.5 11.4 27.6% 6.1 6.3 -2.3% 3.0 2.8 7.9% -0.4 -0.3 21.3% 18.9 14.7 29.2% 42.2 34.8 21.4% EBITDA 3.8% 3.1% 6.4% 6.8% 4.9% 4.8% -3.3% -2.5% 508% 443% 7.6% 6.5% margin% Operating 10.5 7.8 34.7% 4.2 4.4 -5.8% 2.2 2.3 -3.0% -2.5 -1.0 146% 12.5 10.3 21.9% 26.9 23.8 13.3% profit/ loss Operating profit 2.7% 2.1% 4.4% 4.8% 3.7% 4.0% -21% -7.5% 336% 310% 4.9% 4.4% margin % Finance income 0.3 0.3 0.2 0.4 -0.2 -0.3 -0.2 -0.3 -1.1 -1.4 -1.0 -1.3 and costs Corporate in- -2.2 -0.4 -1.2 -1.4 -0.5 -0.4 0.0 0.0 0.0 0.0 -3.9 -2.2 come tax Net profit/loss 8.5 7.7 10.7% 3.3 3.4 -2.9% 1.5 1.7 -9.6% -2.6 -1.3 107% 11.4 8.8 29.1% 22.1 20.3 8.8% Net profit margin% 2.2% 2.1% 3.4% 3.6% 2.5% 2.9% -22% -9.6% 306% 267% 4.0% 3.8%
Supermarkets The consolidated sales revenue of 2015 of the supermarkets segment was 383.4 million euros, growing 4.2% compared to 2014. The monthly average sales revenue of goods per one square metre of sales space was 0.36 thousand euros in 2015, exceeding the previous year`s result by 1.6%. The sales revenue of goods per a square metre of comparable stores was 0.37 thousand euros as an average, showing a growth of 2.2%. The turnover of Selver subsidiary Kulinaaria OÜ outside the Group, especially that of catering service, which does not account for a significant portion of the total turnover of the segment, has grown 35.9% in a year. In 2015, 36.1 million purchases were made in Selver stores and this result exceeds the number of purchases 1.4% year- on-year. The consolidated pre-tax profit of the supermarket segment was 10.8 million euros in 2015 and the net profit was 8.5 million euros, showing a respective growth of 2.7 million euros and 0.8 million euros compared to the previous year. The pre-tax profit earned in Estonia was 13.1 million euros and the net profit was 10.9 million euros. The difference in the net profit and the profit before income tax is due to the income tax paid on dividends: in 2015, the income tax on dividends was 2.22 million euros; in 2014, 0.37 million euros. The pre-tax loss and net loss earned in Latvia were 2.4 million euros.
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 9 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
The year 2015 was influenced by Viimsi Selver, the seventh hypermarket opened in August. The added store not only strengthens competition outside the chain, but also within the chain. However, the number of purchases on year-on-year basis has increased. The average consumer basket has grown compared to previous year. Successful marketing campaigns and very good year-end sales during the holiday season have supported the growth of turnover in 2015. The profit earned in Estonia has been primarily influenced by the greater efficiency achieved in the main process, i.e. selling goods. Stocks have been managed more efficiently, which has resulted in fewer discounts and smaller write-off costs. The cost efficiency has been improved compared to the previous year in terms of operational costs. Regardless of the fact, that the base year includes the opening costs of one store and this year`s operational costs include the opening costs of one store and renovation costs of one store. The largest projects in 2015 were renovation of Torupilli Selver in June and opening of a new Selver in Viimsi centre in August. From November, Tallinn clients can also make their purchases using e-Selver. In addition, SelveEkspress has strongly expanded into additional five existing Selver stores. Clients can use SelveEkspress service already in 19 Selver stores. 2015 was a year of anniversary for Selver – the chain has been active in the market for 20 years. Increasing the number of Selver stores by four stores and renovation of two Selver stores is planned for 2016. The expansion of SelveEkspress self-scan service and the development of e-Selver service will continue.
Department stores The sales revenue of 2015 of the department stores’ business segment was 95.6 million euros, growing 3.3% in a year. The pre-tax profit of department stores was 4.4 million euros in 2015, showing a decrease of 8.0% compared to the previous year. The average sales revenue per a square metre of sales space of department stores was 0.3 thousand euros in a month in 2015, remaining at the same level as the previous year. However, the sales space of department stores has grown 1.1% from the last summer on account of the gourmet department at Tallinn sales premises. At the end of the year, warmer autumn months that enabled customers to postpone outerwear purchase decisions had an effect on the sales result of Kaubamaja. The total sales in 2015 was influenced by the renovation of Viru centre bus terminal during summer months and the renovation of Tartu Kaubamaja centre in the fourth quarter. Although the department stores are in the centre of the city at locations attractive to tourists, the low number of tourists throughout the year had a negative impact on the sales revenue in 2015. At the same time, the warmer autumn months had a positive effect on the profit earned by the department stores due to lower administrative expenditure. Kaubamaja refurbished the beauty department in Tallinn sales premises showing now sparkling displays of exclusive quality brands and giving a facelift to the jewellery and watches area. Many world-renowned brands like MAC, La Prairie, Sisley and Lancome received a larger and more exclusive display. One of the biggest e-developments in the history of Kaubamaja, Kaubamaja permanent e-store, will be completed in 2016. There are several changes intended regarding Kaubamaja sales spaces. The beauty and women’s department of Tartu Kaubamaja and the men’s department of Tallinna Kaubamaja will have a new image and their trademark selection will be supplemented. In addition, there are plans to give a facelift to the women’s shoe department of Tallinna Kaubamaja. The sales revenue of 2015 of OÜ TKM Beauty Eesti that operates I.L.U. beauty stores was 5.1 million euros, growing 9.1% year-on-year. The loss of 2015 was 0.2 million euros, showing a year-on-year decrease of 0.1 million euros. In 2015, the assortment of I.L.U. stores was optimised and restructured to meet the expectations of the target customer. Service quality and introduction of proactive customer service by consultants were under focus in the daily business of the stores. Relocation of the store in Tartu city centre to the new shopping centre at 2 Riia is planned for 2016. The analysis of assortment will continue and the focus will be on increasing the retail margin and growing the store’s profitability. Preparations will be initiated to move the store currently in Lõunakeskus to a more attractive location in 2017.
Car Trade The sales revenue of 2015 of the car trade segment was 60.8 million euros. The sales revenue exceeded the revenue earned in the previous year by 5.3%, whereas the sales revenue of KIAs grew 7.1%. In 2015, altogether 3,011 new vehicles were sold. The net profit of the segment of 2015 was 1.5 million euros, showing a smaller profit by 9.6% compared to the year before. The pre-tax profit of the segment in 2015 was 2.0 million euros, remaining at the same level as the previous year`s result. The result was influenced by the sales campaign of Opel cars in stock and there were also several successful public procurements for cars that increased the sales. The stable car trade of the Group in Lithuania and achieving profitability in 2015 are also worth mentioning. The profit was negatively influenced by the write down of value of Ülemiste car showroom by 0.2 million euro. In 2016, KIA assortment will be extended by several important completely new models, such as SUV KIA Sportage, which is very popular in our region, and KIA Optima and the wagon version of the latter in the middle of the year. KIA will add to its European selection of models a brand new model KIA Niro that KIA has not offered in Europe so far. This is a small hybrid SUV that is offered only with the front-wheel drive. The new OPEL Astra is worth mentioning, as it is being sold from the end of 2015. Regarding Cadillac, the focus is on the new Cadillac Escalade, which arrived at the end of 2015.
Footwear trade The sales revenue of the footwear trade segment in 2015 was 11.9 million euros, which decreased 10.7% in a year. Though in 2015 the sales revenue in total did not grow, in the fourth quarter, despite especially unfavourable weather conditions, a growth of sales revenue was achieved. December became the most complicated of months because it was
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exceptionally warm. The loss for the year was 2.6 million euros. The loss increased compared to the previous year by 1.4 million, by which amount the goodwill of the footwear trade segment was written down to 2.1 million euro. The more successful year end allows to believe that the strategic changes introduced in the Group`s footwear segment, such as normalised level of stock, changes in brand portfolio and sales management with the focus on the results, will bear fruit regardless of the continued severe competition situation. By the end of the year, there were 28 footwear stores in the Group with total retail space of 8.8 thousand m². The biggest challenges for 2016 are the management of brand portfolio at product level, optimising the network of stores and continued improvement of sales efficiency.
Real estate The external revenue of the real estate segment was 3.7 million euros in 2015. The year-on-year sales revenue increased 12.6%. The pre-tax profit of the real estate segment was 11.4 million euros in 2015, which is 2.6 million or 29.1% better than in the previous financial year. The growth of the sales revenue in 2015 was supported by the successful opening of Viimsi centre in August 2015 and renting out of Rezekne building to a party outside of the Group in Latvia. The profit of the real estate segment was influenced by the change in value of the assets of the segment, which increased the profit by 2.3 million euros. In addition to Viimsi centre, an important development project in 2015 was the renovation of Tartu Kaubamaja centre, which is intended to be completed in the first quarter of 2016.
The share Security information ISIN EE0000001105 Ticker TKM1T Nominal value 0.40 EUR Total number of securities 40,729,200 Number of listed securities 40,729,200 Listing date 06.09.1996 The shares of Tallinna Kaubamaja Grupp AS are listed on the Tallinn Stock Exchange from 6 September 1996 and in the Main List, from 19 August 1997. Tallinna Kaubamaja Grupp AS has issued 40,729.2 thousand registered shares of the same class, each with the nominal value of 0.40 euros. Common shareholders are entitled to receive dividends when the company distributes them. Each ordinary share gives one vote at the general meeting of shareholders of Tallinna Kaubamaja Grupp AS. The shares are freely transferable, there are no restrictions imposed on them by the articles of association, likewise, there are no restrictions imposed on the transfer of securities concluded between the company and its shareholders. There are no known restrictions imposed on the transfer of securities laid down in the contracts between the shareholders. NG Investeeringud OÜ has direct majority ownership. Shares granting special rights to their owners have not been issued. The members of the Management Board of Tallinna Kaubamaja Grupp AS have no right to issue or buy back shares of Tallinna Kaubamaja Grupp AS. In addition, there are no commitments between the company and its employees providing for compensation in case of mergers and acquisitions under section 19’ of Securities Market Trade Act.
Dividend policy In recent years the Group has consistently paid dividends to shareholders. According to the notice of the general meeting of the shareholders published on 2 March 2015, the Management Board proposed to pay 16.3 million euros as dividends that is 0.4 euros per share. The general meeting of shareholders approved the proposal. The amount of a dividend distribution has been determined by reference to: . The dividend expectations of the majority shareholders; . The overall rate of return on the local securities market; . The optimal structure capital that is required for the Group’s sustainable development.
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At the end of the 2015 the Group had 3,615 shareholders and division of shares is following:
Number of Ownership structure shareholders Shareholders% Shares% Votes% Private persons 3,104 85.9% 9.2% 9.2% Companies (Estonian) 459 12.7% 3.6% 3.6% Financial institutions (other countries) 12 0.3% 3.3% 3.3% Companies (other countries) 3 0.1% 0.0% 0.0% Financial institutions (Estonian) 35 1.0% 10.0% 10.0% ING LUXEMBOURG S.A. 1 0.0% 6.9% 6.9% OÜ NG INVESTEERINGUD 1 0.0% 67.0% 67.0% Total 3,615 100.0% 100.0% 100.0%
Number of Number of shares shareholders Shareholders% Shares% Votes% 1–100 803 22.2% 0.1% 0.1% 101–1,000 1,840 50.9% 2.0% 2.0% 1,001–10,000 888 24.6% 5.6% 5.6% 10,001–100,000 64 1.8% 4.1% 4.1% 100,001–1,000,000 18 0.5% 14.2% 14.2% 1,000,001– … 2 0.1% 73.9% 73.9% Total 3,615 100.0% 100.0% 100.0%
Share price and trading statistics in Tallinn Stock Exchange during 01.01.2011 - 31.12.2015
1,4 8
1,2 7
6 1,0
5 0,8 4 0,6 3 Price EUR /sharePriceEUR
Turnover million EUR millionTurnover 0,4 2
0,2 1
0,0 0 1.01.2011 1.01.2012 1.01.2013 1.01.2014 1.01.2015 1.01.2016 Turnover TKM1T closing price
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Share trading history
In euros 2011 2012 2013 2014 2015 Average number of shares (1000 40,729 40,729 40,729 40,729 40,729 pcs) Traded shares (pcs) 3,136,128 1,907,270 1,757,026 2,368,070 1,933,408 Dividend / net profit 66% 68% 35% 80% 96%* P/E 9.1 10.7 12.4 10.2 12.4 P/BV 1.4 1.5 1.3 1.2 1.5 Opening price 6.37 4.845 5.5 5.35 5.1 Share price, highest 7.19 6.13 6.37 5.69 7.0 Share price, lowest 4.35 4.845 5.3 4.79 5.03 Share price, at the year-end 4.813 5.48 5.3 5.1 6.74 Share price, yearly average 5.77 5.59 5.67 5.15 6.07 Turnover (million) 17.96 10.70 9.95 12.19 11.6 Capitalisation (million) 196.03 223.20 215.86 207.72 274.51 Earnings per share 0.5 0.5 0.4 0.5 0.5 Dividend per share 0.35 0.35 0.15 0.40 0.52* Equity per share 3.4 3.6 4.1 4.3 4.4
* according to profit allocation proposal P/E = share price at the year-end / earnings per share P/BV = share price at the year-end / equity per share
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Corporate responsibility Tallinna Kaubamaja Group feels very strongly about the implementation of principles of corporate responsibility in daily business. Our objective is to develop an environmentally friendly, responsible and sustainable approach in every activity, starting from the simplest daily tasks to extensive investment projects. For Tallinna Kaubamaja Group, responsibility and sustainability is much more than merely compliance with external requirements, because it is an integral part of our business.
. We act responsibly, taking into account the impact of our activity on the ambient natural environment, the health and quality of life of residents and interlinkage with the interests of various stakeholders. . We fulfil the requirements that govern our activity; however, we are committed to go beyond what is required of us. . We value the natural environment in which we operate; therefore, we use resources sustainably and constantly seek new solutions for more sustainable consumption. To build environmental awareness in society, we encourage and support others in developing such awareness. . We wish to contribute and offer success experience to those that require more help and attention in society. . We wish to support our clients, create value for our shareholders and contribute to the economy. . We wish to be a good neighbour in our community; consequently, we support and encourage activities related to environmental care and healthy lifestyle. An encompassing responsible and environmentally sustainable thinking, which is one of our success factors, is integrated into all businesses and processes of Tallinna Kaubamaja Group. This approach is not solely care for natural resources, but includes honest and open dialogue with employees, clients, suppliers and all other stakeholders. Concurrent with the objective to achieve the best possible efficiency, we focus on environmental protection in our daily business and try to minimise the impact of our operations on the environment. It is important for us to prove our social and environmental responsibility by being open in communication. We are ready to give competent information about all Group companies, their strategies and objectives, as well as talk about less important daily issues. With the level of development of technology in present world, a long-term success can be achieved only with an honest and open dialogue and collaboration with all stakeholders.
Social responsibility Tallinna Kaubamaja Group is aware of its role and responsibility in society, which are reflected in the social responsibility principles accepted throughout the organisation: . We consider Selver chain stores as regional centres where we have assembled several public services important for society. . We prefer local products and we have been working with Estonian small producers for years. . We hold events that promote local design and producers at our department stores and stores. . We are active in sponsoring activities and programmes and organise several charitable campaigns. . We have helped create jobs and we contribute to the nation’s tax revenues. In 2015, Tallinna Kaubamaja Group companies paid altogether 48.2 million euros as taxes to the state and local authorities, a growth of 4.5% in a year (2014: 46.1).
Some examples of activities of Tallinna Kaubamaja Grupp AS companies: . From 1994, Tallinna Kaubamaja has been a godparent for white-tailed eagles at Tallinn Zoo. . Tallinna Kaubamaja has supported the Male Choir of Tallinn University of Technology for over 11 years. . In collaboration with Uuskasutuskeskus (Re-use Centre), stationary collection points for second-hand clothes and footwear have been opened in Kaubamaja. We have donated materials used during promotional campaigns for re- use to childcare institutions and as material for handicraft to special needs people. . During last eight years, Kaubamaja has conducted campaigns in cooperation with several charity organisations and collected money for an animal shelter, big families etc. In our charitable activity, we have primarily focused on pro- jects related to children. There have been many smaller scale undertakings related to children and childcare institu- tions, such as singing competitions, sports days, school parties, where Kaubamaja has awarded the best with me- mentos. In 2015, in cooperation with our clients and employees, we donated corporate and Christmas presents’
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money and revenue from the Christmas sale of charitable products to Eesti Vähihaigete Laste Vanemate Liit (Esto- nian Association of Parents of Children with Cancer). . Within the framework of 20142015 project “Jõulusoovide puu” (Christmas wish tree), Kaubamaja employees in co- operation with SEB Heategevusfond gave presents to children of shelters and substitute homes. . Kaubamaja values Estonian fashion and promotes the work of Estonian designers in every way. Estonian products are specially labelled in Kaubamaja to introduce local design also to tourists. There is a separate area allocated for the work of Estonian fashion designers in the women’s fashion department of Tallinna Kaubamaja and several dis- plays as window and in-store displays introducing Estonian design were organised during the year. Future fashion designers are also important for Kaubamaja we encourage schools to organise fashion shows and help them with awards. For example, we support the organisation of young people’s fashion events “MoeP.A.R.K.” and “NoorMood”. . Kaubamaja and Selver joined with the Diversity Charter in 2012 thereby committing to adhere to the principle of equal treatment and opportunities. We focus on developing diversity in our Group. In a company where employee diversity is valued, be it different age or ethnicity, or employees with special needs, there is more knowledge, skills, experience, perspectives and a more tolerant working environment. We believe that this helps us offer better service to our clients. . For the thirteenth year in a row, Selver has organised a charitable project “Koos on kergem” (It Is Easier Together), the aim of which is to donate money to children’s and maternity departments of hospitals. In every store, money is gathered for the local county hospital. 113,500 euros was collected in 2015 (in 2014 104,000 euros). . In recent years, Selver had cooperated with various charitable organisations, such as Shalom, Food Bank, SAK Fond and congregations to donate foodstuff nearing the best before end date to needy families. Presently, almost 30 Selver stores participate in these projects. . Selver consistently supports animal parks at Elistvere and Alaveski and Tartu animal shelter. . Selver continues to support youth sports and is a title sponsor of the volleyball club Selver Tallinn. The objective of the club is to promote volleyball in Estonia, but also to work with young people and promote professional sports. The club activity includes: . First team: Selver Tallinn; . Club for young to raise the next generation of players: Selver/Audentes; . Promotion of youth sports: Audentes Volleyball School; . Playing beach volleyball: Caparol Beach Volleyball Centre. . In 2015, Selver continued to support the football club FC Flora. . Selver is the title sponsor of Linnajooks (City Runs). The series include altogether seven runs organised all over Es- tonia: Tartu Spring Run, Rapla Selver Great Run, Narva Energy Run, Estonian Night Run in Rakvere, Jüri Jaan- son’s Two Bridge Run in Pärnu, SEB Tallinn Marathon, Paide-Türi Run. Selver is also a sponsor of The Moonsund Regatta. . Selver supports smaller and larger cultural projects, mainly outside larger cities. Saaremaa Opera Festival, Hiiumaa church concerts, Viljandi Folk Festival, Järvi Festival, Hiiu Folk and Pärnu Grillfest were supported in 2015. In addi- tion, several smaller cultural projects were supported.
Wellbeing and motivation of personnel Tallinna Kaubamaja Group is one of the biggest employers in Estonia. In 2015, our Group employed on an average 3,946 people and the number of employees grew 3.2% compared to 2014 (2014: 3,824). As of the end of 2015, almost 97% of our employees were employed under permanent employment contracts and 3% under fixed-term employment contracts. Tallinna Kaubamaja Group offers also an option to work part-time in response to employees’ wishes and opportunities. As of the end of 2015, almost 13% of our employees worked part-time. The success of companies belonging to Tallinna Kaubamaja Group is based on loyal, committed and results-oriented employees. We value long-term and lasting work relationships that provide our employees with stability in their everyday life and develop their competence over years, thereby improving the Group’s competitiveness. The main objective of personnel management is to maintain a sophisticated recruiting and selection process and following targeted development of employees and creation of a working environment supporting it. Various training and evaluation programmes and other incentives support employees’ readiness to serve, their focus on results and commitment in our companies. The Group values highly the experience of its employees, supporting a long-term stable career of employees (both vertical
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and horizontal) within the company. Employees are offered specialised refresher trainings in Estonia as well as abroad. The Group’s total number of training hours exceeded 11,000 in 2015, which is 35% more than the year before. The number of training hours per employee, which was on an average 2.8 hours in 2015 (2014: 2.2), also increased. Internal trainings carried out by specialists in companies play an important role in the development of employees, and we have been continuously increasing their volume and selection to meet the employees` expectations. Kaubamaja internal training offers high-level service and teamwork training. Systematic management of service, where training, evaluation and feedback form an integral whole, enabled Kaubamaja to maintain and improve the level of service in 2015. Experienced managers, specialists and Service Club members that share their experience act as internal trainers. Activities were undertaken in Selver to increase the volume of internal training and service training conducted by Selver internal trainers with the aim of improving further the service quality and offer employees an opportunity to learn and develop. While in 2014 1,375 employees participated in Selver’s internal training programmes, the number of employees grew to 2,510 in 2015. Our mentoring system, which was introduced last year, functions well and helps to reduce the turnover of employees, ensure a good training of new employees and facilitate their induction to the company. At Selver, internal training is carried out by store managers and specialists of various areas. The internal trainers contribute to the induction process of new employees as well as refresh the knowledge of experienced employees. In companies, the focus is still on the development of managerial competences. In 2015, several interesting lecturers made presentations to Kaubamaja managers to share their remarkable practical managerial experience. To prepare new employees and improve the efficiency of the induction period, training programmes have been drawn up in the Group. The programmes are carried out by several specialists, whose experience gained during their long-term service ensures high quality of training and good learning results. New managers are appointed a mentor for their induction period and a sophisticated instructional system functions also to support induction of new employees. The continued development and motivation of employees are ensured by a system of evaluation and competence levels, which corresponds to the main values of companies and job positions competence models. To ensure a new generation of employees, Tallinna Kaubamaja Group has offered students various practical training opportunities. In 2015, we offered practical training opportunities altogether to 99 young people. Our Group companies cooperate closely with vocational institutions and other educational institutions all over Estonia by offering them a place of apprenticeship and being a cooperation partner in training. We have also helped our employees that are students in their writing of their course and final papers offering them the opportunity to use the Group companies as their object of research. This approach helps the Group companies to raise a next generation of forward-looking people that appreciate development. In 2015, we continued our active cooperation with the Estonian Unemployment Insurance Fund to offer practical training and free positions for job seekers. In 2013, Selver made an employment and cooperation agreement with the Unemployment Insurance Fund with the aim of finding various additional cooperation opportunities for recruiting of employees and refresher trainings. Tallinna Kaubamaja Group has contributed together with the Unemployment Fund to improving employment of disabled persons and has offered positions to people that are at a disadvantage to compete in the labour market. In its operations, Tallinna Kaubamaja Group is guided by the principle that a safe working environment is one of the fundamental rights of our employees. We have created a system of measures to ensure safe working environment and occupational health that includes medical examination, regular training in safety requirements (including fire safety and first aid), conducting risk analyses and supplying employees with protective equipment. We have built up a system in the Group to involve working environment representatives in maintaining a healthy working environment. In 2015, there were altogether 60 occupational accidents in the Group, which is 20% less than a year before. We organise joint events that build a foundation for a good atmosphere and cooperation in teams. We celebrate most important holidays together with our employees. A big birthday party for the employees and their companions was organised at Kaubamaja to celebrate the 55th anniversary of Kaubamaja. Selver celebrated its 20th anniversary with a big party where all employees of the company were invited. The Group supports healthy lifestyle among employees by increasing employees’ knowledge of how to care for their health and creating a safe and healthy working environment, providing opportunities to be involved in sports, for recreational activities and healthy lunch and rest breaks in a comfortable environment (rest areas), using the family physician service and blood pressure measuring devices, massage stools and massage services. The Group’s employees can use individual and team sports opportunities. Our teams participate in various non-professional sports events. In our Group, we pay attention to maintaining employees’ motivation using monetary and non-monetary incentives. The objective of Kaubamaja’s incentives system is to ensure coherence of objectives in a way that, in addition to meeting business objectives, ensures client satisfaction and efficiency and development of work processes. In our incentives system, we consider it important to acknowledge a behaviour that is in agreement with the main values. Kaubamaja best service persons and employees are an example for others with their commitment and honouring main values. Employee benefits are related to caring for family and health. A health week for employees was organised, where many health specialists and experts presented their suggestions and shared their knowledge. Tallinna Kaubamaja Group’s labour costs increased altogether 9.5% (wages and salaries cost and social tax cost), which was 50.9 million euros in 2015. The average labour cost per an employee grew 6.3% in 2015 compared to 2014. Wages
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and salaries have been adjusted to prevent growth of turnover of employees and reduction of efficiency in a situation of diminishing recruitment options.
Responsible products and services Tallinna Kaubamaja Group has worked many years to develop sustainability of its products and services and procurement. Responsibility is an important part of our procurement process and includes non-discrimination principles, product-specific quality requirements as well as honouring labour and human rights when buying from high social risk countries. In 2015, over 2,000 suppliers delivered products to Tallinna Kaubamaja Group. 81% of purchases of Tallinna Kaubamaja Group have been made via local suppliers. In term of social responsibility, Tallinna Kaubamaja Group has suppliers also from high social risk countries, such as some countries in Africa, Asia, South America and Central America. Purchase amounts from these countries are very small and accounted for about 0.15% of all purchases in 2015. Private label products 1.5% of products purchased by Tallinna Kaubamaja Group are private label products of which 4.7% have been purchased from high social risk countries. The volume of high-risk products varies depending on product category it is higher for textile products and industrial goods and lower for foodstuff. Tallinna Kaubamaja Group is responsible for own products and their safety. In order to ensure product safety in our private label procurements we have: . Identified producers that have the capability to produce products that meet our requirements; . Identified the location of manufacture of products, including raw materials used therein; . Checked that producers have required certificates and are compliant; . Made supply agreements that set down specific requirements on production and raw materials used therein. The quality and safety of our private label products are constantly monitored. We conduct tests and analyses and listen to client feedback. Products that have already been included in our product selection are tested in accordance with our annual risk control plan. For example, meat and fish products are examined several times in a year, other products less frequently. Traceability and origin of products Traceability and identification of origin of products being sold at Tallinna Kaubamaja Group department stores and stores is important for our clients. Because of that we: . Value local food and offer it to our clients as much as possible; . Prefer local producers, including small producers; . Disclose the place of origin of products and raw materials used therein to clients as clearly and simply as possible; . Monitor working conditions and honouring of human rights in our supply chain. We are aware of our clients’ growing preference to consume primarily local production and foodstuff. To meet this expectation, we have been increasing the selection of local goods in our department stores and stores every year. In Selver chain stores, goods of local origin account for almost 56% of all goods. Our aim is to continue adding and increasing the selection of domestic goods in the following years. The objective of Tallinna Kaubamaja Group is to know our supply chain very well and ensure its transparency, which helps us identify product related risks and opportunities, and develop a responsible production process. For many years now, we have been making efforts to improve working conditions in our supply chain. We have disclosed the origin of products and raw materials used therein that are being sold at our Group’s department stores and stores as clearly as possible. We have supplied packaging of private label products and foodstuff with information about the origin of the product. In Selver chain stores there are products on sale marked with Fair Trade label that ensure our clients that no child labour has been used to produce these products and the employees have been paid fair wages and salaries. To implement responsibility in the supply chain, we conduct regular internal audits; we also visit producers’ plants to see their production conditions and discuss with them our expectations and their capability to satisfy these expectations. In Tallinna Kaubamaja Group, consistent care is taken to ensure that the alerting systems agreed with and practiced by the suppliers, and actions to be taken to stop delivery of damaged products or to initiate their immediate recall before they are sold are efficient and function well. In 2015, there were 30 product recall incidents in the Group, which is 12% less than a year before. If we have any reason to doubt that a product sold to clients is damaged and may be a risk to their health, product recall will
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be immediately initiated and coordinated. This principle is applied similarly in all EU countries. There were five such incidents in our department stores and stores in 2015 (2014: 1). Furthermore, daily monitoring measures are in place in grocery departments of our department stores and stores to ensure freshness and quality of products. If a product is damaged for any reason, it will be removed immediately. Packaging Tallinna Kaubamaja Group prefers environmentally friendly packaging and offers an alternative to plastic material. Paper and textile bags are available at our department stores and stores. We sold altogether 82,671 textile bags in 2015 (2014: 71,497), which is 16% more compared to the previous year. In addition to common small-size plastic bags, Selver chain stores offer environmentally friendly and reusable mesh bags for packing fruits and vegetables. 100% of paper and plastic packaging waste generated in Selver chain stores is recycled. In order to reduce the volume of transport and storage of transport packaging, Selver uses Bepco easily assembled and resistant transport packaging in its logistics process. To prevent release of hazardous waste to the nature, waste containers have been installed to Tallinna Kaubamaja Group department stores and stores. This way, our clients have an easy way to dispose of their used batteries, small electronic devices, and paper, glass and plastic packaging. We have installed bottle-recycling machines near all grocery stores that collect beverage bottles carrying an appropriate package deposit marking.
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Corporate Governance Report The Corporate Governance (CG) is a set of guidelines and recommended rules, which is intended to be observed mainly by publicly traded companies. Tallinna Kaubamaja Group follows largely the Corporate Governance Code despite their indicative nature. Below is a description of the management principles of Tallinna Kaubamaja Group and general meetings held in 2015 and justification is given in the events when some clauses of the Code are not followed. General meeting Exercise of shareholders’ rights The general meeting of shareholders is the highest governing body of Tallinna Kaubamaja Group. The annual general meeting is held once a year and extraordinary general meetings may be convened by the Management Board in the events prescribed by law. The articles of association do not provide for any rights to shares of a different class which would bring about unequal treatment of shareholders in voting. The general meeting is competent to change the articles of association, elect members of the Supervisory Board and decide on their remuneration, appoint an auditor, approve the annual report and allocate profit, as well as decide on other matters stipulated by the articles of association and laws. Convening the general meeting and disclosures Tallinna Kaubamaja Group published a notice convening the general meeting through information system of the NASDAQ OMX Tallinn Stock Exchange as well as on its website on 2 March 2015 and through a daily newspaper Eesti Päevaleht on 3 March 2015. The Group enabled its shareholders to ask questions on the topics specified in the agenda by using the e-mail address and phone specified in the notice, and examines the annual report on its website and in its office at Gonsiori 2, Tallinn, starting from 2 March 2015. The general meeting of shareholders of Tallinna Kaubamaja Group was held in the conference centre of Nordic Hotel Forum, Viru väljak 3, Tallinn, on 26 March 2015 beginning at 16.00 p.m. The resolutions made at the general meeting are published in the press releases on the website of NASDAQ OMX Tallinn Stock Exchange and on the website of Tallinna Kaubamaja Group. At the choice of a member of the Supervisory Board, data of a candidate with regard to his or her participation in the work of the Supervisory Boards, Management Boards or executive managements of other companies have been disclosed. Holding of the general meeting A general meeting can adopt resolutions if over one-half of the votes represented by shares are present. A resolution of general meeting is adopted if over one-half of the votes represented at the meeting are in favour unless a larger majority is required by law. The language of the general meeting held in 2015 was Estonian and the meeting was chaired by the general lawyer of the Tallinna Kaubamaja Group Helen Tulve. The meeting was also attended by the chairman of the Supervisory Board Jüri Käo, members Andres Järving and Gunnar Kraft, member of the Management Board Raul Puusepp and auditor Ago Vilu from PricewaterhouseCoopers AS. 78.35% of the votes represented by shares were present at the general meeting. At the general meeting, allocation of profit was discussed as a separate theme and a separate resolution was adopted with regard to it. Tallinna Kaubamaja Group did not consider it expedient to use the internet to organise its monitoring and participation in the general meeting due to the lack of the necessary technical resources. Considering the aforementioned descriptions of general meetings held in 2015, the Group has largely complied with the Corporate Governance Code in informing the shareholders, convening and holding the general meeting. Management Board The Management Board is a governing body of Tallinna Kaubamaja Group that represents and directs the Group on a daily basis. In accordance with the articles of association, the Management Board may have one to six members. In accordance with the Commercial Code, members of the Management Board of Tallinna Kaubamaja Grupp AS are elected by the Supervisory Board. In order to elect a member of the Management Board, his or her consent is required. According to the articles of association, a member of the Management Board shall be elected for a specified term of up to three years. Extension of the term of office of a member of the Management Board shall not be decided earlier than one year before the planned date of expiry of the term of office, and not for a period longer than the maximum term of office prescribed by the articles of association. Currently, the Management Board of Tallinna Kaubamaja Grupp AS has one member. The term of office of the Management Board member Raul Puusepp was extended on 21 February 2014 and his term of office will expire on 6 March 2017. The duties and remuneration of the Chairman of the Management Board Raul Puusepp are specified in the board member contract concluded with the Chairman. In accordance with the contract, the Chairman of the Management Board is paid a membership fee and he may receive performance pay according to the results of operations of the Group. The remuneration, including social security taxes, paid for 2015 to the Chairman of the Management Board amounted to 161 thousand euros (in 2014, 121 thousand euros) and the calculated fees, including social security taxes, amounted to 130.7 thousand euros (for 2014 the performance pay in amount of 47.5 thousand euros was paid). Unlike clause 2.2.1 of the Corporate Governance Code, the Management Board of Tallinna Kaubamaja Grupp AS consists of one member. It is a historical tradition, but at the same time the management team of the parent company has three members.
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All resolutions are adopted by the Management Board in collaboration with the parent’s company management Supervisory Board. Under the direction of the parent company, close cooperation is carried out with the leaders of subsidiaries and the people responsible for respective areas. The Group believes that such a division protects the best the interests of all shareholders and ensures sustainability of the Group. Supervisory Board The Supervisory Board plans the activities of Tallinna Kaubamaja Group, organises its management and supervises the activities of the Management Board in the period between the meetings of shareholders. The Supervisory Board notifies the general meeting of the result of such supervision. The Supervisory Board decides on the development strategy and investment policy of the Group, conclusion of real estate transactions, adoption of the investment budget and annual budget prepared by the Management Board. The meetings of the Supervisory Board are regularly held. In 2015, 12 scheduled meetings and 1 extraordinary meeting of the Supervisory Board were held and in 2014, 12 scheduled meetings and 1 extraordinary meeting was held. The Supervisory Board has three to six members according to the resolution of the general meeting and the member is elected for up to three years. The work of the Supervisory Board is organised by the Chairman of the Supervisory Board. The meetings of the Supervisory Board are held as necessary, but not less frequently than once every three months. By the resolution of the general meeting held on 26 March 2015, Andres Järving, Jüri Käo, Enn Kunila, Meelis Milder and Gunnar Kraft were elected as the members of the Supervisory Board. Authorities of the current members of the Supervisory Board: Andres Järving, Jüri Käo, Enn Kunila, Meelis Milder and Gunnar Kraft will expire on 19 May 2018. By the decision of the Supervisory Board, Jüri Käo continued as the Chairman of the Supervisory Board, he has been a member of the Supervisory Board of Tallinna Kaubamaja Group from 1997 and has been a Chairman of the Supervisory Board in 2000-2001 and 2009-2015. According to the decision of the annual general meeting on 26 March 2015, the monthly remuneration of the Supervisory Board member of Tallinna Kaubamaja Grupp AS is 1,000 euros; the Chairman of the Supervisory Board receives 1,200 euros monthly. In the year 2015, the remuneration for the members of the Supervisory Board, payroll tax included, was 83 thousand euros, of which the remuneration of the Chairman of the Supervisory Board was 19 thousand euros (in 2014, 83 thousand euros, of which the remuneration of the Chairman of the Supervisory Board was 19 thousand euros). Additionally, the members of the Supervisory Board received remuneration for participating in the work of the audit committee in the total sum of 17 thousand euros, payroll tax included, of which the Chairman of the Supervisory Board received 5 thousand euros (in 2014, 17 thousand euros, of which the Chairman of the Supervisory Board received 5 thousand euros). Cooperation between the Management Board and Supervisory Board The Management Board and Supervisory Board closely collaborate to achieve the purpose of better protection of the interests of Tallinna Kaubamaja Group. The Management Board, management and the Supervisory Board jointly participate in development of the strategy of the Group. In making management decisions, the Management Board and management are guided by the strategic instructions supplied by the Supervisory Board. The Management Board regularly notifies the Supervisory Board of any important circumstances concerning the planning and business activities of the Group’s activities, and separately draws attention to any important changes in the business activities of Tallinna Kaubamaja Group. The Management Board submits the information, including financial statements to the Supervisory Board, in advance before the holding of a meeting of the Supervisory Board. Management of the Group shall be based on the legislation, articles of association, resolutions of meetings of shareholders and Supervisory Board, and the set objectives. Amendments to the articles of association shall be made in accordance with the Commercial Code, under which a resolution on amending the articles of association is adopted if at least 2/3 of the votes represented at a general meeting of shareholders are in favour. A resolution on amending the articles of association shall enter into force as of the making of a respective entry in the commercial register. The articles of association of Tallinna Kaubamaja Grupp AS do not provide for a larger majority requirement. Disclosure of information Tallinna Kaubamaja Group treats all shareholders equally and notifies all shareholders of important circumstances equally, by using its own website as well as the information system of the Tallinn Stock Exchange. Tallinna Kaubamaja Group’s website www.tkmgroup.ee contains general introduction of the Group and key employees, press releases and reports. The annual and interim reports include information on the strategy and financial results of the Group as well as the Corporate Governance Report. In the subsection of press releases, information is disclosed with regard to the membership of the Supervisory Board and auditor, resolutions of the general meeting, and other important information. Financial reporting and auditing The Management Board of Tallinna Kaubamaja Group publishes the annual report once each year and interim reports during the financial year. The Audit Committee members contribute to the process of preparing the annual report primarily for surveil- lance purposes. A meeting of the Supervisory Board, where the annual report is reviewed, is also attended by the auditor of the Group at the invitation of the Supervisory Board. The annual report, which is signed by the members of the Management Board and Supervisory Board, is submitted to shareholders for examination.
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Audit Committee The Audit Committee of Tallinna Kaubamaja Grupp AS was established in March 2010, its statutes were approved at the meeting of the Supervisory Board of Tallinna Kaubamaja Grupp AS held on 21 May 2010. The Audit Committee is a body established by the Supervisory Board, the task of which is advising the Supervisory Board in supervision issues. For this purpose, the Audit Committee exercises supervision in the following areas: . adherence to accounting principles;
. preparation and approval of the financial budget and reporting;
. sufficiency and effectiveness of performing an external audit;
. development and functioning of an internal control system (incl. risk management);
. monitoring of the legality of the Group’s operations. The Audit Committee separately participates in guaranteeing the independence of the process and activities of an external audit, and planning and assessment of an internal audit.
In performing its tasks, the Audit Committee collaborates with the Supervisory Board, the Management Board, internal and external auditors and if necessary, external experts. The Audit Committee has 5 members, at least half of whom are appointed from among the members of the Supervisory Board. The members are appointed by the Supervisory Board for three years. The Supervisory Board of Tallinna Kaubamaja Grupp AS appointed Andres Järving, Gunnar Kraft, Jüri Käo, Kaia Salumets and Kristo Anton as the members of the Audit Committee. The Audit Committee prepares an annual summary report about meeting the goals sets in the statutes and presents it to the Supervisory Board. Based on its duties, the Audit Committee provides ongoing evaluations and makes proposals to the Supervisory Board, the Management Board, the internal audit and/or an external audit provider. 10 planned Audit Committee meetings were held during the accounting period.
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Plans for 2016
The most important development plans and objectives of Tallinna Kaubamaja Group for 2016 are: . Continued growth of the Group’s market share
. Improving profitability
. Increasing the number of Selver stores by four stores and renovation of two Selver stores
. Expanding e-Selver in terms of geography and volume and improving the process
. Expanding the SelveEkspress self-scan service
. Opening of a Kaubamaja permanent e-store
. Initiating the designing of a new Kaubamaja Tallinn building
. Improving the profitability of the footwear segment
. Developing the technology and product base of the Kulinaaria’s central kitchen
. Expanding import of beauty brands fitting the Group’s different formats
. Developing the marketing capability of the Partner programme
. Increasing the market share of security business
. Expanding the car trade businesses
. Finding business expansion opportunities
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Chairman’s confirmation of and signature to the management report
The Chairman confirms that management report gives a true and fair view of the key events occurred in the reporting period and their impact on the financial statements, contains a description of key risks and uncertainties of the financial year and provides an overview of important transactions w ith the related parties.
Tallinn, 25 February 2016
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CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT BOARD’S CONFIRMATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The Chairman of the Management Board confirms the correctness and completeness of Tallinna Kaubamaja Grupp AS consolidated financial statements for the year 2015 as set out on pages 24-65.
The Chairman of the Management Board confirms that:
1. the accounting policies used in preparing the financial statements are in compliance w ith International Financial Reporting Standard as adopted in the European Union; 2. the financial statements give a true and fair view of the financial position, the results of the operations and the cash flow s of the Parent and the Group; 3. Tallinna Kaubamaja Grupp AS and its subsidiaries are going concerns.
Tallinn, 25 February 2016
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION in thousands of euros Note 31.12.2015 31.12.2014 ASSETS Current assets Cash and cash equivalents 5 13,911 24,626 Trade and other receivables 6 20,191 17,938 Inventories 8 61,110 56,876 Total current assets 95,212 99,440 Non-current assets Long-term trade and other receivables 11 293 338 Investments in associates 10 1,778 1,778 Investment property 12 44,963 3,035 Property, plant and equipment 13 196,691 227,914 Intangible assets 14 9,043 10,402 Total non-current assets 252,768 243,467 TOTAL ASSETS 347,980 342,907
LIABILITIES AND EQUITY Current liabilities Borrow ings 15 33,377 20,405 Trade and other payables 17 77,066 70,317 Total current liabilities 110,443 90,722 Non-current liabilities Borrow ings 15 57,426 77,663 Provisions for other liabilities and charges 502 692 Total non-current liabilities 57,928 78,355 TOTAL LIABILITIES 168,371 169,077 Equity Share capital 19 16,292 16,292 Statutory reserve capital 2,603 2,603 Revaluation reserve 65,701 67,159 Currency translation differences -255 -255 Retained earnings 95,268 88,031 TOTAL EQUITY 179,609 173,830 TOTAL LIABILITIES AND EQUITY 347,980 342,907
The notes presented on pages 29 - 65 form an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME in thousands of euros Note 2015 2014
Revenue 20 555,447 535,045 Other operating income 12 5,140 715
Cost of sales 8 -416,134 -403,716 Other operating expenses 21 -50,776 -50,027 Staff costs 22 -50,890 -46,493 Depreciation, amortisation and impairment losses 13,14 -15,234 -10,970 Other expenses -609 -767 Operating profit 26,944 23,787 Finance income 23 12 24 Finance costs 23 -1,144 -1,494 Finance income on shares of associates 10 142 172 Profit before income tax 25,954 22,489 Income tax expense 18 -3,883 -2,194 NET PROFIT FOR THE FINANCIAL YEAR 22,071 20,295
Other comprehensive income Items that may be subsequently reclassified to
profit or loss
Currency translation differences 0 2 Other comprehensive income for the financial 0 2 year TOTAL COMPREHENSIV E INCOME FOR THE 22,071 20,297 FINANCIAL YEAR Basic and diluted earnings per share (euros) 24 0.54 0.50
Net profit and total comprehensive income are attributable to the ow ners of the parent.
The notes presented on pages 29 - 65 form an integral part of these consolidated financial statements.
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CONSOLIDATED CASH FLOW STATEMENT in thousands of euros Note 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net profit 22,071 20,295 Adjustments: Interest expense 23 1,144 1,494 Interest income 23 -12 -24 Depreciation, amortisation and impairment losses 13,14 15,208 10,929 Gain from fair value adjustment of investment property 12 -4,314 0 Loss on sale and write-off of non-current assets 13 26 41 Profit on sale of non-current assets 13 -18 -11 Effect of equity method 10 -142 -172 Income tax on dividends paid 19 3,873 1,324 Corporate income tax paid 19 10 1,012 Change in inventories -4,227 -4,879 Change in receivables and prepayments related to operating -1,209 2,261 activities Change in liabilities and prepayments related to operating 6,496 2,216 activities TOTAL CASH FLOWS FROM OPERATING ACTIVITIES 38,906 34,486
CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (excl. finance 13 -19,982 -8,982 lease) Proceeds from sale of property, plant and equipment 13 389 83 Purchases of intangible assets 14 -544 -125 Investments in subsidiaries 9 -47 -308 Change in balance of parent company’s group account 26 -1,000 -4,000 Dividends received 10 142 105 Interest received 23 12 24 TOTAL CASH FLOWS USED IN INVESTING ACTIVITIES -21,030 -13,203
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrow ings 15 49,005 52,508 Repayments of borrow ings 15 -57,214 -47,042 Change in overdraft balance 15 943 1,199 Dividends paid 19 -16,292 -6,109 Income tax on dividends paid 19 -3,873 -1,324 Reduction of share capital 19 0 -8,146 Corporate income tax paid 19 -10 -1,012 Interest paid 23 -1,150 -1,498 TOTAL CASH FLOWS USED IN FINANCING ACTIVITIES -28,591 -11,424 TOTAL CASH FLOWS -10,715 9,859 Effect of exchange rate changes 0 1
Cash and cash equivalents at the beginning of the period 5 24,626 14,766 Cash and cash equivalents at the end of the period 5 13,911 24,626 Net change in cash and cash equivalents -10,715 9,860
The notes presented on pages 29 - 65 form an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY in thousands of euros Statutory Revalua- Currency Share Retained reserve tion re- translation Total capital earnings capital serve differences Balance as of 31.12.2013 24,438 2,603 68,617 -257 72,387 167,788 Net profit for the reporting period 0 0 0 0 20,295 20,295
Other comprehensive income for the 0 0 0 2 0 2 reporting period Total comprehensive income 0 0 0 2 20,295 20,297 for the reporting period Reclassification of depreciation of 0 0 -1,458 0 1,458 0 revalued land and buildings Reduction of share capital -8,146 0 0 0 0 -8,146 Dividends paid 0 0 0 0 -6,109 -6,109 Balance as of 31.12.2014 16,292 2,603 67,159 -255 88,031 173,830
Net profit for the reporting period 0 0 0 0 22,071 22,071 Total comprehensive income 0 0 0 0 22,071 22,071 for the reporting period Reclassification of depreciation of 0 0 -1,458 0 1,458 0 revalued land and buildings Dividends paid 0 0 0 0 -16,292 -16,292 Balance as of 31.12.2015 16,292 2,603 65,701 -255 95,268 179,609
Additional information on share capital and changes in equity is provided in Note 19.
The notes presented on pages 29 - 65 form an integral part of these consolidated financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 General information
Tallinna Kaubamaja Grupp AS (the Company) and its subsidiaries (together as the Group) are entities engaged in retail trade and provision of related services. Tallinna Kaubamaja Grupp AS is a company registered on 18 October 1994 in the Republic of Estonia w ith the legal address of Gonsiori 2, Tallinn. The shares of Tallinna Kaubamaja Grupp AS are listed on the NASDAQ OMX Tallinn Stock Exchange. The majority shareholder of Tallinna Kaubamaja Grupp AS is OÜ NG Investeeringud (Note 28), the majority ow ner of w hich is NG Kapital OÜ. NG Kapital OÜ is an entity w ith ultimate control over Tallinna Kaubamaja Grupp AS. These consolidated financial statements have been authorised by the Management Board on 25 February 2016 for issue. In accordance w ith the Commercial Code of the Republic of Estonia, the Annual Report shall be approved by the Company’s Supervisory Board and approved by the General Meeting of Shareholders.
Note 2 Accounting policies adopted in the preparation of the financial statements Bases of preparation The consolidated financial statements of Tallinna Kaubamaja Grupp AS for the year 2015 have been prepared in accordance w ith International Financial Reporting Standards (IFRS) as adopted in the European Union. The consolidated financial statements have been prepared under the historical cost convention, except for land and buildings that have been revalued and are reported under the revaluation method as described in the respective accounting policies, as w ell as investment property w hich is reported at fair value. The functional and presentation currency of Tallinna Kaubamaja Grupp AS is euro. All amounts disclosed in the financial statements have been rounded to the nearest thousand unless referred to otherw ise. In preparing the consolidated financial statements, the follow ing accounting policies applied to all periods presented in the financial statements have been used, unless referred to otherw ise. In accordance w ith International Financial Reporting Standards, management needs to make accounting estimates in certain areas. They also need to make decisions in respect of the adoption of the Group’s accounting policies. The areas in w hich the importance and complexity of management’s decisions have a greater impact or in w hich the consolidated financial statements largely depend on assumptions and estimates, are disclosed in Note 3.
Changes in accounting policies and presentation In 2015 consolidated annual report the presentation of Statement of profit or loss and other comprehensive income lines has been adjusted to give a better overview of group’s financial position. Accordingly 2014 comparatives have been adjusted as follow ing. In 2014 consolidated annual report Statement of profit or loss and other comprehensive income line “Cost of sales” w as show n in the amount of 402,233 thousand euros and “Other operating expenses” in the amount of 51,510 thousand euros. In 2015 consolidated annual report in line “Cost of sales” is recorded 403,716 thousand euros and in line “Other operating expenses” is recorded 50,027 thousand euros. Packaging cost of the goods is reclassified in the amount of 1,483 thousand euros. Abovementioned change has no impact to the Group financial results.
Adoption of New or Revised Standards and Interpretations The follow ing new or revised standards and interpretations became effective for the Group from 01.01.2015. There are no other new or revised standards or interpretations that are effective for the first time for the financial year beginning on or after 01.01.2015 that w ould be expected to have a material impact to the Group. Annual Improvements to IFRSs 2012 (effective for annual periods beginning on or after 1 February 2015).
IFRS 8 w as amended to require (1) disclosure of the judgements made by management in aggregating operating segments, including a description of the segments w hich have been aggregated and the economic indicators w hich have been assessed in determining that the aggregated segments share similar economic characteristics, and (2) a reconciliation of segment assets to the entity’s assets w hen segment assets are reported. The basis for conclusions on IFRS 13 w as amended to clarify that deletion of certain paragraphs in IAS 39 upon publishing of IFRS 13 w as not made w ith an intention to remove the ability to measure short-term receivables and payables at invoice amount w here the impact of discounting is immaterial. IAS 16 and IAS 38 w ere amended to clarify how the gross carrying amount and the accumulated depreciation are treated w here an entity uses the revaluation model.
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IAS 24 w as amended to include, as a related party, an entity that provides key management personnel services to the reporting entity or to the parent of the reporting entity (‘the management entity’), and to requir e to disclose the amounts charged to the reporting entity by the management entity for services provided.
The Group assesses that there is no impact of application of the amendments to its financial statements . Annual Improvements to IFRSs 2013 (effective for annual periods beginning on or after 1 January 2015). IAS 40 w as amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in IAS 40 assists preparers to distinguish betw een investment property and ow ner-occupied property. Preparers also need to refer to the guidance in IFRS 3 to determine w hether the acquisition of an investment property is a business combination. The Group assesses that there is no impact of application of the amendments to its financial statements. IFRS 15, Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018; not yet adopted by the EU).
The new standard introduces the core principle that revenue must be recognised w hen the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts w ith customers have to be capitalised and amortised over the period w hen the benefits of the contract are consumed. The Group is currently assessing the impact of the new standard on its financial statements.
Annual Improvements to IFRSs 2014 (effective for annual periods beginning on or after 1 January 2016). IAS 34 w ill require a cross reference from the interim financial statements to the location of "information disclosed elsew here in the interim financial report".
Disclosure Initiative – Amendments to IAS 1 (effective for annual periods beginning on or after 1 January 2016). The amendments clarify guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The Group assesses that there is no impact of application of the amendments to its financial statements. IFRS 16, Leases (effective for annual periods beginning on or after 1 January 2019; not yet adopted by the EU). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees w ill be required to recognise: (a) assets and liabilities for all leases w ith a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forw ard the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those tw o types of leases differently. The Group is currently assessing the impact of the new standard on its financial statements. There are no other new or revised standards or interpretations that are not yet effective that w ould be expected to have a material impact on the Group.
Disclosures about the primary statements of the Parent In accordance w ith the Accounting Act of Estonia, the separate primary statements of the consolidating entity (Parent) are to be disclosed in the notes to the consolidated financial statements. The Parent’s primary statements, disclosed in Note 30, have been prepared using the same accounting methods and measurement bases as those that have been used for preparing the consolidated financial statements.
Investments into subsidiaries and associates are reported in the separate primary statements using the equity method starting from this reporting year. The parent company has elected to apply IAS 27 before the effective date, the amendment of w hich allow s companies to use the equity method w hen reporting investments in subsidiaries, jointly controlled companies and associates in non-consolidated statements. The parent company changed the principle of reporting subsidiaries and associates as of 1 January 2014 and started to apply the equity method instead of the acquisition cost method, w hich resulted in an increase of investment into the shares of subsidiaries by 126,248,000 euros and the value of shares of associates by 1,296,000 euros, w hereas loans given to
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subsidiaries w ere w ritten dow n in the amount of 2,190,000 euros and the retained profit increased in the sum of 125,354,000 euros as at 1 January 2014. Due to the changed accounting principle, the comparable data of 2014 have been changed as follow s: - The shares of subsidiaries w ere reported in the sum of 28,327,000 euros, a change of 146,355,000 euros, and the adjusted value of shares of subsidiaries is 174,682,000 euros. - The shares of associates w ere reported in the sum of 415,000 euros, a change of 1,363,000 euros, and the adjusted value of shares of associates is 1,778,000 euros. - Receivables and prepayments w ere reported in the sum of 10,753,000 euros, a change of 3,314,000 euros, and the adjusted value of receivables and prepayments is 7,439,000 euros. - The profit for the 2014 financial year w as 5,170,000 euros, a change of 19,053,000 euros, and the adjusted profit for the financial year is 24,223,000 euros.
Foreign currency transactions
Functional and presentation currency The financial statements of Group entities have been prepared in the currency of the primary economic environment of each entity (functional currency), that being the local currency. The functional currency of the Parent and its subsidiaries registered in Estonia is euro. The consolidated financial statements have been prepared in euros. Accounting for foreign currency transactions Foreign currency transactions are recorded based on the foreign currency exchange rates of the central bank prevailing on the dates of the transactions. Monetary assets and liabilities denominated in a foreign currency have been translated using the foreign currency exchange rates of the central bank prevailing on the balance sheet date. Profits and losses from foreign currency transactions are recognised in the income statement as income or expenses of that period. Financial statements of foreign entities When the functional currency of subsidiaries differs from the functional currency of the Parent (for example, the Lithuanian lits in case of the entities operating in Lithuania), the follow ing principles have been applied to translate the financial statements of subsidiaries prepared in foreign currencies: . The assets and liabilities of all foreign subsidiaries have been translated using the exchange of the central bank rate prevailing on the balance sheet date; . The income and expenses of subsidiaries have been translated using the w eighted average exchange rate for the year (unless this average cannot be considered a reasonable rounding of the cumulative effect of the rates prevailing on the transaction date in w hich case income and expenses are translated on the dates of the transaction).
The exchange rate differences are reported in the equity item “currency translation differences”. Upon the disposal of foreign subsidiaries, the amounts reported in the equity item “currency translation differences” are recognised in profit or loss of the financial year.
Principles of consolidation
Subsidiaries
Subsidiaries are all entities over w hich the Group has control. The Group controls an entity w hen the Group is exposed to, or has rights to, variable returns from its involvement w ith the entity and has the ability to affect those returns through its pow er over the entity. Subsidiaries are fully consolidated from the date on w hich control is transferred to the Group and are de- consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of acquisition is measured as the fair value of consideration paid upon acquisition (i.e. assets transferred, liabilities incurred and equity instruments issued by the acquirer for the purpose of acquisition) plus fair value of assets and liabilities of contingent consideration. Costs directly attributable to the acquisition are recorded as expenses. Acquired and separately identifiable assets, liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values on the date of acquisition The Group chooses for each business combination w hether to account for non-controlling interest at fair value or proportionally to net assets. The excess of the cost of acquisition over the fair value of the Group’s share of the identif iable net assets acquired is recorded as goodw ill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income.
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In preparing consolidated financial statements, the financial statements of all the subsidiaries under the control of the Parent are combined on a line-by-line basis. The receivables, liabilities, income, expenses and unrealised profits w hich arise as a result of transactions betw een the Parent and its subsidiaries are eliminated. Accounting policies of subsidiaries have been changed, w here necessary, to ensure consistency w ith the policies adopted by the Group.
Associates
Associate is an entity in w hich the Group has significant influence, but w hich it does not control. Significant influence is generally presumed to exist w hen the Group holds betw een 20% and 50% of the voting pow er of the investee. In the consolidated financial statements, investments in associated are carried using the equity method; under this method, the initial investment is adjusted w ith the profit/loss received from the entity and the dividends collected. Unrealised gains on transactions betw een the investor and its associates are eliminated to the extent of the Company’s interest in the investment. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds the book value of the associate, the investment is reduced to zero and further losses are recognised as off -balance-sheet items. When the Group has incurred obligations or made payments on behalf of the associates, the respective liability is recorded in the balance sheet, and loss under the equity method is recognised. Where necessary, the accounting policies of associates have been changed to correspond to the accounting policies of the Group.
Segment reporting Operating segments are reported in a manner consistent w ith the internal reporting provided to the chief operating decision- maker. The chief operating decision-maker, w ho is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Supervisory Board of the Parent that makes strategic decisions.
Cash and cash equivalents For the purposes of the balance sheet and the cash flow statement, cash and cash equivalents include cash on hand, bank account balances (excl. overdraft) and term deposits w ith maturities of 3 months or less. Overdraft is included w ithin short- term borrow ings in the balance sheet. Cash collected, but not yet deposited in the bank account is recognised as cash in transit. Cash and cash equivalents are carried amortised cost.
Financial assets The Group’s financial assets are classified only in the category of loans and receivables. Classification depends on the purpose for w hich the financial assets w ere acquired. Management determines the classification of financial assets at initial recognition. Loans and receivables are initially recognised at their cost w hich is the fair value of consideration paid for the financial asset. Initial cost includes all transactions costs directly attributable to the financial asset. Subsequently, the Group carries loans and receivables at amortised cost (less any impairment losses), calculating interest income on the receivable in the follow ing periods using the effective interest rate method. Loans and receivables are non- derivative financial assets w ith fixed or determinable payments that are not quoted in an active market. Loans and receivables are included w ithin current assets except for maturities greater than 12 months after the balance sheet date. Such assets are classified as non-current assets. Loans and receivables are reported as trade. and other receivables in the balance sheet. An impairment loss is recognised w hen there is objective evidence that the Group is unable to collect all amounts due according to the original terms of receivables. Such situations may include significant financial difficulties of the debtor, bankruptcy or delinquency in payments to the Group. The amount of the impairment loss is the difference betw een the carrying amount and the present value of cash flow s to be received from the present value, discounted at the initial effective interest rate of the receivable. Financial assets are derecognised from the balance sheet w hen the entity loses its right to receive cash flow s from the financial asset or w hen it transfers the cash flow s from the asset and most of the related risks and benefits to a third party. Purchases and sales of financial assets are recognised consistently from the day on w hich the Company becomes the ow ner of the financial asset or loses its ow nership interest in the financial asset.
Inventories
Inventories are initially recognised at cost w hich includes the purchase price, the related customs duties and other non - refundable taxes and costs of transportation directly attributable to the acquisition of inv entories, less any discounts and
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volume rebates. The FIFO method is used to account for the cost of industrial goods inventories and the cost of food products. In the car trade segment, the cost of spare parts is recognised by means of the w eighted average acquisition cost method and that of cars is recorded on individual cost basis. Inventories are measured in the balance sheet at the low er of acquisition/production cost and net realisable value. The net realisable value is the estimated sales price less estimated expenditures for completion and sale of the product.
Investment property
The property (land or a building) held by the Group for earning long-term rental yields or for capital appreciation, rather than it its ow n operations, is recorded as investment property. Investment property is initially recognised in the balance sheet at cost, including any directly attributable expenditure (e.g. notary fees, property transfer taxes, professional fees for legal services, and other transaction costs w ithout w hich the transaction w ould have not taken place). Investment property is subsequently measured at fair value, based on the market price determined annually by independent appraisers, based on the prices of recent transactions involving similar items (adjusting the estimate for the differences) or using the discounted cash flow method. Changes in fair value are recorded under the income statement items “Other operating expenses”/“Other operating income”. No depreciation is calculated on investment property recognised at fair value. Investment property, w hose fair value cannot be determined reliably, is measured at cost less any accumulated depreciation and any accumulated impairment losses. Investment property is derecognised on disposal or w hen the asset is w ithdraw n from use and no future economic benefits are expected. Gains or losses from the derecognition of investment property are included w ithin other operating income or other operating expenses in the income statement in the period in w hich derecognition occurs. When the purpose of use of an investment property changes, the asset is reclassified in the balance sheet. From the date of the change, the accounting policies of the Group into w hich the asset has been transferred are applied to the asset.
Property, plant and equipment Property, plant and equipment are assets used in the operations of the Company w ith a useful life of over one year w hen it is probable that future economic benefits attributable to them w ill flow to the Company. Land and buildings are carried using the revaluation method: after initial recognition, land and buildings are carried at the revalued amount, being the fair value of the assets at the date of revaluation less any accumulated depreciation and any impairment losses. Valuations are performed regularly by independent real estate experts at least once every four years. Earlier accumulated depreciation is eliminated on the date of revaluation and the former cost of the asset is replaced by its fair value on the date of revaluation. The increase in the carrying amount of land and buildings as a result of revaluation is recognised in the statement of comprehensive income and accumulated in the equity item “Revaluation reserve“. The recoveries of value of such assets that have been w ritten dow n through profit or loss are recognised in the income statement. Impairment of an asset is recognised in the statement of comprehensive income to the extent of the accumulated revaluation reserve of the same asset. The remaining amount is charged to the profit or loss. Each year, the difference in depreciation arising from the difference in historical cost and revalued amounts of assets is transferred from ”Revaluation reserve” to “Retained earnings” . Other items of property, plant and equipment are recognised at cost less any accumulated depreciation and any impairment losses. Other items of property, plant and equipment are initially recognised at cost w hich consists of the purchase price and any directly attributable expenditure. For items of property, plant and equipment that necessarily take a substantial period of time to get ready for its intended use, the borrow ing costs are capitalised in the cost of the asset. Capitalisation of borrow ing costs is terminated w hen the asset is substantially ready to be used or its active development has been suspended for a longer period of time. Subsequent expenditure incurred for items of property, plant and equipment are recognised as property, plant and equipment w hen it is probable that future economic benefits associated w ith the asset w ill flow to the company and the cost of the asset can be measured reliably. Other repair and maintenance costs are recognised as expenses at the time they are incurred. The straight-line method is used for determining depreciation. The depreciation rates are set separately for each item of property, plant and equipment depending on its useful life. The ranges of useful lives for the Groups of property, plant and equipment are as follow s: . Land and buildings - Land is not amortised.
- Buildings and facilities 10-50 years incl. Renovation of buildings 12-23 years
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. Machinery and equipment 3-7 years . Other fixtures and fittings - IT equipment and softw are 3-7 years
- Vehicles and fixtures 5 years - Capitalised improvements on rental premises 4-10 years Depreciation is started w hen the asset is available for use for the purpose intended by management and is ceased w hen the residual value exceeds the carrying amount, w hen the asset is permanently w ithdraw n from use or upon its reclassification as held for sale. On each balance sheet date, the appropriateness of the depreciation rates, the depreciation method and the residual value are review ed. Management assesses on each balance date w hether there is any know n indication of the impairment of non-current assets. When indications of impairment exist, management determines the recoverable amount of non-current assets (i.e. higher of the fair value of the asset less costs to sell and its value in use). When the recoverable amount is low er than the carrying amount, the items of property, plant and equipment are w ritten dow n to their recoverable amount. An impairment loss recognised in previous period is reversed w hen there has been a change in the estimates that form the basis for determining recoverable value.
Profits and losses from the sale of non-current assets, determined by subtracting the carrying amount from the sales price, are recognised w ithin other operating income or other operating expenses in the statement of comprehensive income.
Intangible assets Purchased intangible assets are initially recognised at cost w hich includes the purchase price and any directly attributable expenditure. The cost of intangible assets acquired in a business combination is their fair value at the time of the business combination. After initial recognition, intangible assets are recognised at loss less any accumulated amortisation and any impairment losses.
The straight-line method is used for amortising intangible assets w ith finite useful lives. The useful lives are as follow s:
. Beneficial contracts 5.5 years . Trademark 15 years . Development expenditure 5 years For determining the useful lives of beneficial lease agreements, the length of lease agreements has been used as the basis, in case of the trademark and development expenditure, the expected length of a cash-generating period has been taken into consideration. The amortisation charge of intangible assets w ith a finite useful life is recognised in the income statement according to the allocation of intangible assets. The amortisation period and method of intangible assets w ith definite useful lives are review ed at least once at the end of the financial year. Changes in the expected useful lives or the ex pected use of economic benefits related to the asset are recognised as changes in the amortisation period or method. Such changes are treated as changes in accounting estimates. Intangible assets w ith finite useful lives are tested for impairment w henever there is any indication that the carrying amount of the asset may not be recoverable. If necessary, the asset is w ritten dow n to its recoverable amount.
Impairment of assets
Assets that are subject to depreciation and land are assessed for possible impairment w hen there is any indication that the carrying amount of the asset may not be recoverable. Whenever such indication exists, the recoverable amount of the asset is assessed and compared w ith the carrying amount. An impairment loss is recognised in the amount by w hich the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of the asset is the higher of its fair value less costs to sell and its value in use. An impairment test is performed for the smallest identifiable group of assets for w hich cash flow s can be determined (cash-generating unit). On each follow ing balance sheet date, the test is repeated for the assets that have been w ritten dow n to determine w hether their recoverable amount has increased.
Goodw ill Goodw ill is subsequently measured at cost less any accumulated impairment losses. Goodw ill is not amortised. Instead, an impairment test is performed annually (or more frequently if an event or change in circumstances indicates that the value of goodw ill may be impaired).
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For the purpose of impairment testing, goodw ill is allocated to the Group’s cash-generating units or groups of units w hich are expected to generate economic benefits from a specific business combination. An independent cash-generating unit (group of units) is the smallest identifiable group of assets w hich is not larger than an operating segment used for segment reporting. Impairment is determined by estimating the recoverable amount of the cash-generating unit. When the recoverable amount of the cash-generating unit is low er than its carrying amount (incl. goodw ill), an impairment loss for goodw ill is recognised. Impairment losses of goodw ill are not reversed. Finance and operating leases Leases w hich transfer substantially all the risks and rew ards incidental to ow nership to the lessee are classified as finance leases. Other leases are classified as operating leases. The Group as the lessee Finance leases are recognised in the balance sheet as assets and liabilities at the low er of the fair v alue of the leased asset and the present value of minimum lease payments. Each lease payment is apportioned betw een the finance charges (interest expense) and reduction of the outstanding liability. The finance costs are charged to the income statement over the lease period so as to achieve a constant periodic rate of interest on the remaining balance of the liability. The assets acquired under finance leases are depreciated similarly to purchased assets over the shorter of the useful life of the asset and the lease term (if the passage of ow nership at the end of lease period is not certain). Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Payments to be made to the lessor for the right of use of rental premises are treated as part of the rental agreement and these payments are recognised as rental prepayments in the balance sheet and a rental expense on a straight -line basis over the lease term. The Group as the lessor Assets leased out under operating lease terms are recognised in the balance sheet analogously to property, plant and equipment. They are depreciated over their expected useful lives on a basis consistent w ith similar assets. Operating lease payments are recognised as income on a straight-line basis over the lease term.
Financial liabilities Financial liabilities (trade payables, other current and non-current liabilities) are initially recognised at cost, less transaction costs. They are subsequently measured at amortised cost, using the effective interest rate method. The amortised cost of current financial liabilities generally equals their nominal value, therefore current financial liabilities are carried in the balance sheet in their redemption value. For determining the amortised cost of non-current financial liabilities, they are initially recognised at the fair value of the consideration received (less any transaction costs), calculating interest expense on the liability in subsequent periods using the effective interest rate method. A financial liability is classified as current w hen it is due to be settled w ithin 12 months after the balance sheet date or the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrow ings due to be settled w ithin 12 months after the balance sheet date but that are refinanced as long-term after the balance sheet date but before the financial statements are authorised for issue are recognised as current liabilities. Borrow ings that the lender has the right to recall on the balance sheet date as a consequence of a breach of contractual terms are also recognised as current liabilities. Borrow ings costs (e.g. interest) related to construction of assets are capitalised during the period w hich is necessary to prepare the asset for the purpose intended by management. Other borrow ing costs are expensed in the period in w hich they are incurred.
Provisions and contingent liabilities Provisions are recognised in the balance sheet w hen the company has a (legal or contractual) commitment arising from the events occurred before the balance sheet date; it is probable that an outflow of resources w ill be required to settle the obligation; but the final amount of the liability or date of payment are not know n. Provisions are recognised based on management’s estimates regarding the amount and timing of the expected outflow s. The amount recognised as a provision is the best estimate of the management regarding the expenditure required to settle the present obligation on the balance sheet date or to transfer it to a third party. Provisions are recognised at the discounted value (in the amount of the present value of payments relating to the provision), unless the effect of discounting is insignificant. The cost relating to the provision is recognised in the income statement for the period. Future operating losses are not recognised as provisions. Other obligations w hose settlement is not probable or the amount of accompanying expenditure of w hich cannot be measured w ith sufficient reliability, but that in certain circumstances may become obligations, are disclosed as contingent
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liabilities in the notes to the financial statements.
Corporate income tax and deferred corporate income tax
Corporate income tax assets and liabilities, and income tax expenses and income include current (payable) income tax and deferred income tax. Income tax payable is classified as a current asset or a current liability, and deferred income tax as a non-current asset or a non-current liability. Group’s Estonian entities
In accordance w ith applicable law s of the Republic of Estonia, the Estonian entities do not pay income tax on profits. Instead of the income tax payable on profits, the Estonian entities pay corporate income tax on dividends, fringe benefits, gifts, donations, costs of entertaining guests, non-business related disbursements and adjustments of the transfer price. As of 01 January 2015 the current tax rate is 20/80 on the amount paid out as net dividends (until 31 December 2014 tax rate w as 21/79 on the amount paid out as net dividends). As income tax is paid on dividends and not on profit, no temporary differences arise betw een the tax bases of assets and liabilities and the carrying amounts of assets and liabilities w hich may give rise to deferred income tax assets and liabilities. The corporate income tax arising from the payment of dividends is recognised as a liability and an income tax expense in the period in w hich dividends are declared, regardless of the period for w hich the dividends are paid or the actual payment date. An income tax liability is due on the 10th day of the month follow ing the payment of dividends. The maximum income tax liability w hich w ould accompany the distribution of Company’s retained earnings is disclosed in Note 29 to the consolidated financial statements.
Group’s Latvian and Lithuanian entities
In Latvia and in Lithuania, corporate profits are subject to income tax. The corporate income tax rate is 15% in Latvia and 15% in Lithuania on taxable income. Taxable income is calculated by adjusting profit before tax for permanent and temporary differences as permitted by local tax law s. For foreign subsidiaries, the deferred income tax assets and liabilities are determined for all temporary differences betw een the tax bases of assets and liabilities and their carrying amounts on the balance sheet date. Deferred corporate income tax on calculated on the basis of tax rates applicable on the balance sheet date and current legislation, expected to prevail w hen the deferred tax assets are settled. Deferred tax assets are recognised in the balance sheet only w hen it is probable that future taxable profit w ill be available against w hich the deductions can be made.
Revenue recognition Revenue is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates granted. Revenue from the sale of goods is recognised w hen all significant risks and rew ards of ow nership of the goods have been transferred to the buyer, w hen the amount of revenue and the costs incurred in respect of the transaction can be measured reliably and the receipt of economic benefits associated w ith the transaction is probable. Revenue from the sale of goods – retail sales Revenue from the sale of goods is recognised at the time w hen a sales transaction is completed for the client in a retail store. The client generally pays in cash or by credit card. The probability of returning goods is estimated based on prior experience, and returns are recognised in the period of the sales transaction as a reduction of revenue. Revenue from the sale of goods – wholesale Revenue from the sale of goods is recognised w hen all the risks and rew ards have been transferred to the client in accordance w ith the terms of delivery. The probability of returning goods is estimated based on prior experience, and returns are recognised in the period of the sales transaction as a reduction of revenue. Revenue from provision of services Revenue from provision of services (mainly rental income) is recorded upon the provision of services or (w hen services are performed over a longer period of time), based on the stage of completion on the balance sheet date. Income from joint advertising The provision of marketing services arising from contractual relations is recorded as income from joint advertising as the Group has a contractual obligation to advertise its sublessees and their products for common benefit throughout the year during various campaigns and joint events via various media channels and outlets.
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Interest income Interest income is recognised using the effective interest rate. Interest income is recognised w hen the receipt of revenue is probable and the amount of revenue can me estimated reliably. If the receipt of interest is uncertain, interest income is recognised on a cash basis. In cooperation w ith credit institutions, the Group offers its clients the loyalty card Partner Krediitkaart w ith credit options. The clients are required to pay a fixed interest for the credit used w ith Partner Krediitkaart and the interest income is divided betw een the bank and the Group in proportion to the distribution of risks related to the crediting activity.
Loyalty program In 2012, the Group implemented a new loyalty programme for customers, w hich allow s Partner Card holders to earn points for purchases and use these points to pay for their future purchases in the Group’s six companies. When paying for the purchases, one bonus point equals one euro cent. Points earned during a calendar year w ill expire at the end of January of the follow ing calendar year. In the first sales transaction, the Group w ill recognise revenue in the amount paid by the customer, w hich has been reduced by the value of the bonus points used for future purchases. For the bonus points used in the future, the balance sheet w ill recognise a liability in the amount of the number of unused bonus points multiplied by one euro cent. Bonus points accumulated during the f inancial year that w ill expire by the end of January of the follow ing financial year are determined by the time of preparing the annual report and recognised in the sales revenue, and the liability of bonus points has been derecognised from the balance sheet.
Statutory reserve capital
The Company has formed statutory reserve capital in accordance w ith the Commercial Code of the Republic of Estonia. During each financial year, at least 5% of the net profit shall be entered in reserve capital, until reserve capital is at least 10% of share capital. Reserve capital may be used to cover a loss, or to increase share capital. Payments shall not be made to shareholders from reserve capital.
Earnings per share
Basic earnings per share are determined by dividing the net profit for the financial year by the w eighted average number of shares issued during the period. The diluted earnings per share are calculated by adjusting both the net profit as w ell as the average number of shares w ith potential shares that have a dilutive effect on earnings per share. As the Group does not have financial instruments w ith a dilutive effect on earnings per share, the basic earnings per share equal the diluted earnings per share.
Payables to employees Payables to employees contain the contractual obligation arising from employment contracts w ith regard to performance- based pay w hich is calculated on the basis of the Group's financial results and meeting of objectives set for the employees. Performance-based pay is included in period expenses and as a liability if it is paid in the next financial year. In addition to the performance-based pay, this liability also includes accrued social and unemployment taxes calculated on it. Pursuant to employment contracts and current legislation, payables to employees also include vacation pay accrual as of the balance sheet date. In addition to the vacation pay accrual, this liability also includes accrued social and unemployment taxes.
Note 3 Critical accounting estimates and judgements
The preparation of financial statements in conformity w ith International Financial Reporting Standards requires the use of certain critical accounting estimates and judgments by management, w hich impact the amounts reported in the f inancial statements. It also requires management to exercise its judgment and make estimates in the process of applying the Group’s accounting policies and measurement bases. Although these estimates have been made to the best know ledge of management, they may not coincide w ith subsequent actual results. Changes in management estimates are included in the income statement of the period in w hich the change occurred. The areas requiring key management judgments and estimates w hich have a direct impact on the amount reported in the financial statements are as follow s: . Determination of the revalued value of land and buildings: the Group accounts for land and buildings using the revaluation method. For this purpose, management regularly evaluates w hether the f air value of revalued non-current assets does not significantly differ from their carrying amount. Management uses expert opinions to determine the fair value of revalued non-current assets, w hereby the estimates of external experts for every object are us ed at least every 4 years. As a result of the impairment test performed in 2015 the carrying value of land and buildings located in Estonia
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w as reduced by 239 thousand euros. The valuation performed in 2014 did not reveal significant differences betw een fair values and carrying value of land and buildings located in Estonia. No significant differences w ere recognised betw een fair values and carrying value of land and buildings located in Latvia, carrying value: 13,075 thousand euros as at 31.12.2015 (31.12.2014: 16,210 thousand euros). As at 31.12.2015 the carrying value of land and buildings using revaluation method w as 146,755 thousand euros (31.12.2014: 173,944 thousand euros). More detailed information is disclosed in Note 13. . Assessment of impairment of buildings under construction: at each balance sheet date, the Group assesses w hether any indications exist of possible impairment of buildings under construction. If such indications exist, an impairment test is performed at each balance sheet date on assets that have been previously impaired. For estimation of the value, the items’ value in use is determined. For determining the value in use, the discounted cash flow method is used and the investment value is found. Internal and external valuers w ere used for determining the value in use. As a result of the impairment test performed in the end of 2015 buildings under construction located in Estonia (carrying value: 12,142 thousand euros as at 31.12.2015) w as reduced by 1,448 thousand euros. Buildings under construction located in Latvia w ere reduced by 587 thousand euros as impairment. Valuation performed in the end of 2014 financial year did not reveal significant differences betw een value in use and carrying value buildings under construction located in Estonia. Also no significant differences w ere recognised betw een fair values and carrying value of buildings under construction located in Latvia (carrying value: 18,316 thousand euros as at 31.12.2014). See more detailed information in Note 13.
. Assessment of impairment of goodwill: at least annually, the Group evaluates possible impairment of goodw ill w hich arose in the acquisition of subsidiaries. For the purpose of determining the value, the fair value is determined for cash- generating units w hich goodw ill has been allocated to. For determining the value in use, management has forecast future cash flow s of cash-generating units and selected an appropriate discount rate for determining the present value of cash flow s. As at 31.12.2015, the carrying value of goodw ill w as 5,373 thousand euros (2014: 6,710 thousand euros). The results of the impairment tests performed in the financial year show ed that recognition of impairment of goodw ill w as necessary in footw ear segment in the amount of 1,441 thousand euros. In 2014 no recognition of impairment of goodw ill w as necessary. More detailed information is disclosed in Note 14. . Estimation of the useful lives of property, plant and equipment: the Group ow ns several in the recent past completed sales areas, the useful lives of significant components of w hich have been estimated using the data of technical project documentation and historical data. Actual useful lives may differ from those initially estimated by management. Had the useful lives of buildings been extended by 10%, the Group’s depreciation cost for 2015 w ould have decreased by 356 thousand euros (323 thousand euros for 2014).
Note 4 Risk management and description of key risks
Managing risks associated w ith the Group’s business is an important and integral part of the Group’s management. The supervisory boards of companies in cooperation w ith the managements and audit committee of the Group regularly analyse the risks of companies and the risk mitigation. The audit committee analyses the management plans of identified risks and the assessed risk levels. The executive managements identify and assess risks, prepare risk management plans and make proposals for the allocation of resources to deal w ith the most important risks, if necessary. The internal audit department together w ith managements promote risk aw areness and introduction of risk management into the processes and to the employees. The Group’s ability to identify, measure and manage various risks has a significant effect on the profitability of the Group. In the Group, risk management is arranged by applying a common method that governs identification, assessment, prioritising and handling of risks. A risk is defined as a possible future event or scenario that may influence the achievement of objects of the Group and/or its companies. Every year, risks are identified and assessed in all Group companies. Risk management involves assessing the effect and likelihood of realisation of risks, and classifying and categorising risks. Risk management is coordinated by the head of the internal audit department that reports regularly to the audit committee. The tasks of the audit committee include risk-related monitoring and preparing a risk report.
Management of financial risks The Group’s activity may be associated w ith exposure to several financial risks, of w hich liquidity risk, credit risk and mar ket risk (including foreign exchange rate risk, interest rate risk and price risk) have the most significant impact. Managing financial risks falls w ithin the competence of the management board of the parent company, and it involves identification, measurement and management of risks. The objective of financial risk management is the mitigation of financial risks and reducing the volatility of financial performance results. The supervisory board of the parent company oversees that measures are taken by the management board to manage risks. The Group systematically analyses and manages risks through the financial unit, w hich is involved in financing the parent company and its subsidiaries, and consequently, in managing liquidity risk and interest rate risk. Managements and financial units of subsidiaries also analyse and manage risks. Assistance of the specialists of the principle shareholder NG Investeeringud OÜ is used in risk management. All the financial assets of the Group are included in the category “Loans and receivables” and they comprise cash and cash equivalents (Note 5), trade receivables (Note 7), other short-term receivables (Note 6) and other long-term receivables (Note
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11). All financial liabilities of the Group are gathered under the category “Other financial liabilities” and they include loan liabilities (Note 15), trade creditors (Note 17), interest payable, other accrued expenses and rental prepayments of tenants (Note 17).
Market risk Foreign currency risk Foreign exchange risk is a risk that the fair value of financial instruments or cash flow s w ill fluctuate in the future due to changes in foreign exchange rates. The financial assets and liabilities denominated in euros are deemed to be financial assets and liabilities free of foreign exchange risk. To manage the foreign exchange risk of the Group, most of the contracts are concluded in euros. As of the end of the accounting period, the Group did not have any major financial assets and liabilities fixed in some other currency than the euro. The Group has assessed its foreign-exchange risks in current financial year and does not see any reason to use additional measures to manage the foreign exchange risk. The Group operates through its subsidiaries both in Latvia and Lithuania. Latvia joined the euro zone on 1st of January 2014 and Lithuania joined the euro zone of 1st of January 2015. Accordingly the Group has no foreign exchange risk related to Latvian and Lithuanian subsidiaries. Cash flow and fair value change interest rate risk Interest rate risk is such risk w hereby an increase in interest expenses due to higher interest rates may significantly impact the profitability of the Group’s operations. The Group’s interest-rate risk mainly arises from long-term loan commitments. The Group’s long-term loans are primarily tied to EURIBOR, therefore, the Group is dependent on the developments in international financial markets. In managing the Group’s interest rate risk, it is important to monitor the changes in the money market interest rate curve, w hich reflects the expectations of market participants in respect of market interest rates and enables to evaluate the trend of formation of EUR interest rates.
In 2015, the 6-month EURIBOR decreased from 0.169% at the beginning of the year to the year-end -0.04%. In the beginning of 2016, EURIBOR has been stable at average level of -0.04%. Business analysts estimate that EURIBOR w ill not rise in 2016 enough to significantly affect the Group’s financial performance results. Had the interest rates for financial liabilities w ith a floating interest rate been 1 percentage point higher as at 31 December 2015 (31 December 2014: 1 percentage point), the Group’s financial cost w ould have increased by 944 thousand euros (2014: 947 thousand euros). Had the interest rates been 0.1 percentage point low er as at 31 December 2015, the Group’s financial cost w ould have decreased by 94 thousand euros (2014: as at 31 December 2014 changed by 0.1 percentage point and by 95 thousand euros).
During the interest rate analysis, different options to hedge risks are considered. Such options include refinancing, renew al of existing positions and alternative financing. During the financial year and the previous financial year, the management evaluated and recognised the extent of the interest-rate risk. How ever, the Group has not entered into transactions to hedge the interest-rate risk w ith financial instruments, as it finds the extent of the interest-rate risk to be insignificant.
The borrow ings of the Group are exposed to changes in interest rate risks as follow s: in thousands of euros 31.12.2015 31.12.2014 Rates changing during 3 months 16,399 16,383 Rates changing during 3 – 6 months 74,404 81,685 Total borrow ings at floating interest rate 90,803 98,068 Total borrowings 90,803 98,068
Credit risk Credit risk is defined as the risk that the Group w ill suffer as financial loss caused by the other party of a financial instrument w ho is unable to meet its liabilities. The Group is exposed to credit risk arising from its operating (mainly receivables) and investing activities, including deposits in banks and financial institutions. The management of the Group manages the credit risk arising from deposits in banks and financial institutions in compliance w ith the Group’s strategy, according to w hich the Group may invest available funds only into financial instruments that meet the follow ing criteria: - Deposits and cash in bank accounts in domestic credit institutions – the domestic credit institution has an activity li- cence as required by the Credit Institutions Act and the credit rating of its parent bank by Moody’s rating agency is at least A2 and the rating perspective is set at least as stable or equivalent;
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- Deposits and cash in bank accounts in foreign credit institutions– the credit rating of the foreign credit institution as provided by Moody’s rating agency is at least A2 and the rating perspective is set at least as stable or equivalent; - Interest and money market funds – the management company has an activity licence as prescribed by the Invest- ment Funds Act and the w eighted average of the investments (enterprises) comprising the fund has been given Moody’s credit rating Baa3 at the least. In the allocation of short term liquid funds the follow ing principles are follow ed in the order of priority : - Assuring liquidity; - capital retention; - earning income. The Group does not keep more than a half of its assets (including money in the bank account, deposits and investments in the bonds of the relevant bank) in one bank to manage the liquidity risk.
Cash and cash equivalents by the credit rating of the depositing bank in thousands of euros:
31.12.2015 31.12.2014 Aa3 13,329 5,631 A1 0 18,445 Total 13,329 24,076 Credit rating is given to deposits. The data is from the w ebsite of Moody’s Investor Service.
As at 31 December 2015, the maximum credit risk arising from receivables is in the amount of 17,809 thousand euros (2014: 15,976 thousand euros).
Due to the specific nature of retail sales, the Group is not exposed to any major credit risk. Possible credit risk related to receivables is primarily attributable to non-collection of rental income, but this risk does not represent a major risk for the Group. The aging structure of receivables is as follow s, in thousands of euros:
31.12.2015 31.12.2014
Not due 16,862 14,839 Incl. receivables from the group account 5,000 4,000 Incl. receivables from card payments 2,083 1,924 Incl. trade receivables 7,254 7,107 Incl. other receivables 2,525 1,808 Overdue < 3 months 878 980 Overdue 3 - 6 months 36 111 Overdue 6 - 12 months 28 29 Overdue > 12 months 5 17 Total receivables 17,809 15,976
With regard to receivables not yet overdue, the claims against the group account is secured by the group account contract of NG Investeeringud OÜ. According to the contract, the members of the latter group are solidarily responsible for any unpaid amounts. The receivables arising from card payments are secured by the card payment agreement of Sw edbank AS, ensuring the receipt of card payments during tw o banking days. Bonuses and other receivables are secured by merchandise contracts and they do not carry credit risk because the Group’s liabilities to the same contractual partners exceed the receivables due from them.
The Group does not consider it necessary to w rite dow n its overdue receivables, because the customers w ith overdue receivables are also the Group’s suppliers w hose liabilities exceed the amount of receivables.
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 40 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
Liquidity risk Liquidity risk is risk that the Group is unable to meet its financial liabilities due to cash flow shortages. Liquidity, i.e. the existence of adequate financial resources to settle the liabilities arising from the activities of the Group is one of the priorities of Tallinna Kaubamaja Grupp AS. For more efficient management of the Group’s cash flow s, joint group accounts of the Parent and its subsidiaries have been set up at the banks w hich enable the members of the group accounts to use the monetary funds of the Group w ithin the limit established by the Parent. In its turn, this group as a subgroup has joined the contract of the group account of NG Investeeringud OÜ. The group accounts have been opened in Estonia. To manage liquidity risk, the Group uses different sources of financing, including bank loans, overdraft, regular monitoring of trade receivables and delivery contracts. Cash flow forecasting is performed in the operating entities of the Group in and aggregated by group finance. Group finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs w hile maintaining sufficient headroom on its undraw n committed borrow ing facilities. Such forecasting takes into consideration the Group’s debt financing plans, at all times so that the Group does not breach borrow ing limits or covenants.
Tallinna Kaubamaja Grupp AS has solid support from the financial sector to secure the liquidity and development process of the Group. According to the Group’s experience, it is possible to obtain additional sources of funding w ith favourable interest rates, and also to refinance or extend existing loans if necessary.
Analysis of the Group’s undiscounted financial liabilities by maturity dates:
3-12 after 5 Total In thousands of euros < 3 months months 1-3 years 3-5 years years 31.12.2015 Borrow ings 6,530 25,473 41,795 18,606 0 92,404 Financial liabilities (Note 17) 64,503 0 0 0 0 64,503 Total 71,033 25,473 41,795 18,606 0 156,907 3-12 after 5 Total In thousands of euros < 3 months months 1-3 years 3-5 years years 31.12.2014 Borrow ings 3,009 18,515 35,979 40,957 2,374 100,834 Financial liabilities (Note 17) 59,568 0 0 0 0 59,568 Total 62,577 18,515 35,979 40,957 2,374 160,402
For calculating future cash flow s, the floating interest rates prevailing at the balance sheet date of 31.12.2015 and 31.12.2014, have been used. As at the end of the financial year, the Group had available funds in the amount of 13,911 thousand euros (2014: 24,626 thousand euros). The Group follow s its established credit risk management strategy w hen investing its cash flow surplus. As at 31 December 2015, the Group had deposits in the amount of 5,000 thousand euros into the joint group account through its parent company NG Investeeringud OÜ (4,000 euros as at 31.12.2014 w as deposited). Working capital w as negative by 15,231 thousand euros (2014: positive by 8,718 thousand euros) as at 31 December 2015. On the one hand, the negative change in w orking capital w as due to the decrease in monetary resources in 2015 mainly because of investments made on account of ow n resources; on the other hand, the amount of short-term debt increased significantly because of several long-term bullet loan repayments at the end of their term in 2016 in the sum of 19,343 thousand euros, w hich w ere reported under current liabilities. Therefore, the quick ratio of the Group (current assets minus inventories / current liabilities) decreased to 0.31 in 2015, w hereas the ratio w as 0.47 in 2014. In January 2016, the Group extended the term of one bullet loan repayment in the sum of 4,542 thousand euros to 2019 on more favourable terms and conditions. The other loans that w ill expire in 2016 are intended to be refinanced in the first half of 2016. In the estimate of the management, the Group does not have liquidity issues and there is no difficulty in the performance of duties.
Capital management
The Group’s primary goal of capital (both debt and equity) management is to ensure a strong capital structure, w hich w ould support the stability of the Group’s business operations and continuity of its operations, and w ould optimise the capital struc- ture, low er the cost of capital and thereby protect the interests of shareholders. To preserve and adjust the capital structure, the Group may regulate the dividends payable to the shareholders, resell shares, change the nominal value of shares, issue new shares or sell assets to cover liabilities.
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Follow ing a common practice in retail business, the Group uses the debt to equity ratio, w hich is calculated as net debt to total equity, to monitor its proportion of capital. As at 31 December 2015, the ratio w as 30% and compared to 31 December 2014 w hen the ratio w as 30%, it has not changed. in thousands of euros
31.12.2015 31.12.2014 Interest-bearing liabilities (Note 15) 90,803 98,068 Cash and cash equivalents (Note 5) -13,911 -24,626 Net debt 76,892 73,442 Equity 179,609 173,830
Total equity and interest-bearing borrowings 256,501 247,272 Debt to equity ratio* 30% 30%
*Debt to equity ratio = Net debt / Total equity and borrowings
Fair value of financial instruments Management estimates that the carrying amount of the Group’s financial assets and liabilities does not significantly differ from their fair value. Trade receivables and payables are short-term and therefore the management estimates that their carrying amount is close to their fair value. Most of the Group’s long-term borrow ings are based on floating interest rates, w hich change according to the market interest rate. Based on the above, the management estimates that the fair values of long-term payables and receivables are an approximation of their carrying amount. To determine the fair value, a discounted cash flow analysis has been used, by discounting contractual future cash flow s w ith current market interest rates that are available to the Group for using similar financial instruments. Fair value of financial instruments is level 3.
Note 5 Cash and cash equivalents
in thousands of euros 31.12.2015 31.12.2014 Cash on hand 582 550 Bank accounts 11,488 22,325 Cash in transit 1,841 1,751 Total cash and cash equivalents 13,911 24,626
Note 6 Trade and other receivables
in thousands of euros
31.12.2015 31.12.2014 Trade receivables (Note 7) 10,284 10,167 Receivables from Parent (Note 26) 5,000 4,000 Other short-term receivables 2,490 1,774 Total financial assets from balance sheet line 17,774 15,941 “Trade and other receivables” Prepayment for inventories 1,741 1,154 Other prepaid expenses 590 553 Prepaid rental expenses 77 160 Prepaid taxes (Note 18) 9 130 Total trade and other receivables 20,191 17,938
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Note 7 Trade receivables
in thousands of euros 31.12.2015 31.12.2014 Trade receivables 7,211 7,554 Provision for impairment of trade receivables -37 -59 Receivables from related parties (Note 26) 1,027 748 Credit card payments (receivables) 2,083 1,924 Total trade receivables 10,284 10,167
Note 8 Inventories
in thousands of euros 31.12.2015 31.12.2014 Goods purchased for resale 60,358 56,133 Raw materials and materials 752 743 Total inventories 61,110 56,876
The income statement line “Cost of sales” includes the allow ances and w rite-off expenses of inventories and inventory stocktaking deficit as follow s: in thousands of euros
2015 2014 Write-dow n and w rite-off of inventories 7,995 8,265 Inventory stocktaking deficit 1,843 1,764 Total materials and consumables used 9,838 10,029
The basis for inventory w rite-dow n is their aging structure and in case of fashion goods, the seasonality. The carrying amount of inventories is adjusted through the allow ance account. As at 31 December 2015, the allow ance account amounted to 815 thousand euros (31.12.2014: 819 thousand euros). The Group’s cost of goods sold in 2015 amounted 416,134 thousand euros (2014: 403,716 thousand euros). The Group recognises as the “Cost of goods sold” the cost of purchased passenger cars, food and industrial goods, packing material, cost of finished goods, logistics and transportation, discount and w rite off of inventories. Inventories have been partially pledged as part of the commercial pledge; information on pledged assets is disclosed in Note 25.
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Note 9 Subsidiaries
Tallinna Kaubamaja Grupp AS as at 31.12.2015 consists of: Ow nership Year of Location Area of activity Name 31.12.2015 acquisition Selver AS Tallinn Pärnu mnt. 238 Retail trade 100% 1996 Real estate Tallinn Gonsiori 2 100% 1999 Tallinna Kaubamaja Kinnisvara AS management Real estate Tartu Riia 1 100% 2004 Tartu Kaubamaja Kinnisvara OÜ management Real estate Riga Ieriku iela 3 100% 2006 SIA TKM Latvia management SIA Selver Latvija Riga Ieriku iela 3 Retail trade 100% 2006 Commercial and finance Tallinn Gonsiori 2 100% 2007 TKM Auto OÜ activities KIA Auto AS Tallinn Ülemiste tee 1 Retail trade 100% 2007 Marupe K.Ulmana gatve Retail trade 100% 2007 Forum Auto SIA 101 KIA Auto UAB Vilnius, Perkunkiemio g.2 Retail trade 100% 2007 TKM Beauty OÜ Tallinn Gonsiori 2 Retail trade 100% 2007 TKM Beauty Eesti OÜ Tallinn Gonsiori 2 Retail trade 100% 2007 TKM King AS Tallinn Betooni 14 Retail trade 100% 2008 Kaubamaja AS Tallinn Gonsiori 2 Retail trade 100% 2012 Kulinaaria OÜ Tallinn Taevakivi 7B Centre kitchen activities 100% 2012 Viking Motors AS Tallinn Tammsaare tee 51 Retail trade 100% 2012 Viking Security AS Tallinn Tammsaare tee 62 Security activities 100% 2014
Business combinations in 2015: Name Location Area of activity Acquisition date Ownership %
Digisilm Videovalve OÜ Estonia Security activities 08.07.2015 100%
On 8 July 2015, Viking Security AS, subsidiary of Tallinna Kaubamaja Grupp AS, concluded an agreement, acquiring 100% of shares of Digisilm Videovalve OÜ. Digisilm Videovalve OÜ w as established on 6 July 2015 through division of Digisilm Pro OÜ, w hereby the video surveillance business w as allocated to Digisilm Videovalve OÜ. Acquisition of the holding of Digisilm Videovalve OÜ enables Tallinna Kaubamaja Grupp AS to strengthen its field of security services further, w hich has been one of the fastest expanding business ventures of the Group over the last few years. Through this transaction, Viking Security AS w ill enhance its services related to the design, installation and maintenance of electronic alert, surveillance and monitoring systems. The table below provides an overview of acquired identifiable assets and liabilities of Digisilm Videovalve OÜ at the time of acquisition.
in thousands of euros Fair value
Cash and bank 3 Inventory 5 Fixed assets (Note 13) 7 Total identifiable assets 15 Cost of ow nership interest 120 Paid for ow nership interest in cash 50 Cash and cash equivalents in the acquired entity -3 Total cash effect on the Group -47
Goodw ill at value of 104 thousand euros arose from the transaction (Note 14). Group has paid in the reporting period from the cost of ow nership interest 50 thousand euros. Remaining amount 70 thousand euros w ill be paid according to the contract by the end of 2016. Merger resolutions of Viking Security AS and Digisilm Videovalve OÜ w ere adopted on 17th of November 2015 and Com- mercial Register registered the abovementioned merger on 23rd of December 2015. According to the merger agreement
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signed on 16th of November 2015 the legal successor of Digisilm Videovalve OÜ is Viking Security AS. By registration of the merger, all assets of Digisilm Videovalve OÜ w ere given over to Viking Security AS. In connection to the registration of the merger, Digisilm Videovalve OÜ w as deleted from the Commercial Register. The share capital of the acquiring company did not change.
Business combinations in 2014:
Name Location Area of activity Acquisition date Ownership %
Viking Security AS Estonia Security activities 02.09.2014 100%
Acquisition of the shareholding in Viking Security AS enables Tallinna Kaubamaja Grupp AS to further strengthen its security services, one of the most fast-grow ing business areas of the Group in recent years. As a result of the transaction, the service portfolio of Topsec Turvateenused OÜ w ill expand from manned guarding and video security to include services related to the design, installation and maintenance of electronic alarm, security and surveillance systems and the possibility of participating in certified security tenders.
Trademark at value of 180 thousand euros w as acquired. Trademark w ill be amortised w ithin 7 years (Note 14).
Note 10 Investments in associates in thousands of euros Tallinna Kaubamaja Grupp AS has ow nership of 50% (2014: 50%) interest in the entity AS Rävala Parkla w hich provides the services of a parking house in Tallinn.
31.12.2015 31.12.2014 Investment in the associate at the beginning of the year 1,778 1,711 Profit for the reporting period under equity method 142 172 Dividends received -142 -105 Investment in the associate at the end of the year 1,778 1,778
Financial information about the associate Rävala Parkla AS (reflecting 100% of the associate):
31.12.2015 31.12.2014 Assets 3,605 3,602 Liabilities 48 46 Revenue 460 456 Profit 284 344
Note 11 Long-term trade and other receivables in thousands of euros
31.12.2015 31.12.2014 Prepaid rental expenses 48 87 Deferred tax asset 210 216 Other long-term receivables 35 35 Total long-term trade and other receivables 293 338
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Note 12 Investment property in thousands of euros
Carrying value as at 31.12.2013 3,035 Carrying value as at 31.12.2014 3,035 Reclassification (Note 13) 37,614 Net gain from fair value adjustment 4,314 Carrying value as at 31.12.2015 44,963
Investment properties comprise constructions in progress and immovables improved w ith commercial buildings.
In 2015, immovables improved w ith commercial buildings (Viimsi shopping centre and Tartu Kaubamaja), w hich the Group maintains predominantly for earning rental income, w ere partially classified as investment properties and partially as property, plant and equipment. In Latvia, Rezekne commercial building and property w as reclassified as investment property from property, plant and equipment. Also property in Rae municipal Peetri w as reclassified as investment property from property, plant and equipment. Therefore in 2015, reclassification from the property, plant and equipment group “Land and buildings” to investment properties w as made in the amount of 37,614 thousand euros. At the moment of reclassification there w ere no differences betw een the carrying value and fair value of the properties. Assessment of fair value of the item “Investment properties”
At the end of 2015, the fair value of “Investment properties” w as assessed. Fair values w ere determined based on the management’s judgement, using the assessments of certified independent real estate experts for determining the inputs. To determine fair values, the discounted cash flow method and market data (comparable transactions, rental income etc.) w ere used. The acquisition cost of the object acquired in 2015 w as according to management assessment equal to its fair value. Discount rates 8.510.0% depending on the location of the property and rental income grow th rates 2.02.4% w ere used for valuation. When determining the rental price input in the assessment of “Investment properties”, the current rental agreements have been used, w hich in the estimation of the management correspond to the market conditions.
An opinion of a certified independent real estate expert w as used as basis for the valuation of one completed object of “Investment properties” in Latvia as at 31 December 2015. The discount rate 10.0% and rental income grow th rates 1.52.5% w ere used in valuation. When determining the rental price input in valuation, the current rental agreement has been taken into account, w hich in the estimation of the management corresponds to the market conditions. As a result of the valuation, the net fair value adjustment of investment property in Estonia w as 3,852,000 euros and the net fair value adjustment of investment property in Latvia w as 462,000 euros. As a result of the valuation, no fair value change of investment property w as identified in 2014. Group management has prepared fair value sensitivity analysis for investment properties. Accordingly if rental income w ould change +/- 10% then the fair value of investment properties w ould change +4,700/-4,699 thousand euros. If the discount rates used for determing fair value w ould change +/-0.5% then the fair value of investment properties w ould change +860/- 884 thousand euros. The Group’s investment properties carried at fair value as at 31.12.2014 and 31.12.2015 are classified as level 3.
In 2015, the Group’s rental income on investment properties amounted to 548 thousand euros. Direct property management expenses amounted to 419 thousand euros.
Future operating lease rentals receivable under non-cancellable contracts break dow n as follow s
In thousand of euros 31.12.2015
due in less than 1 year 1,435 due betw een 1 and 5 years 5,194 due after 5 years 1,224 Total 7,853
Investment property w as partially used as collateral for the borrow ings. More detailed information is disclosed in Note 25.
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Note 13 Property, plant and equipment in thousands of euros
Construc- Machinery Other Land and tion in and fixtures and Total buildings progress and equipment fittings prepayments 31.12.2013 Cost or revalued amount 181,231 27,022 28,663 49,678 286,594 Accumulated depreciation and decrease in value -3,006 -19,558 -18,874 -15,750 -57,188 Carrying value 178,225 7,464 9,789 33,928 229,406 Changes occurred in 2014 Purchases and improvements 11 385 758 7,828 8,982 Acquired through business combinations (Note 9) 0 33 1 0 34 Reclassification 1,193 1,906 3,777 -6,876 0 Disposals 0 -61 -11 0 -72 Write-offs -30 -4 -7 0 -41 Depreciation -5,455 -1,971 -2,969 0 -10,395 31.12.2014 Cost or revalued amount 181,815 28,728 29,527 50,630 290,700 Accumulated depreciation and decrease in value -7,871 -20,976 -18,189 -15,750 -62,786 Carrying value 173,944 7,752 11,338 34,880 227,914 Changes occurred in 2015 Purchases and improvements 20 187 132 19,643 19,982 Acquired through business combinations (Note 9) 0 0 7 0 7 Reclassification 4,650 3,047 3,076 -10,773 0 Reclassification to investment property (Note 12) -26,294 0 0 -11,320 -37,614 Disposals 0 -174 -197 0 -371 Write-offs 0 -9 -17 0 -26 Decrease in value -239 0 0 -2,035 -2,274 Depreciation -5,326 -2,256 -3,345 0 -10,927 31.12.2015 Cost or revalued amount 156,799 30,688 30,577 48,180 266,244 Accumulated depreciation and decrease in value -10,044 -22,141 -19,583 -17,785 -69,553 Carrying value 146,755 8,547 10,994 30,395 196,691
Investments in non-current assets The cost of investments of 2015 amounted to 20,526 thousand euros (including purchases of property, plant and equipment in the amount of 19,982 thousand euros and purchases of intangible assets amounted to 544 thousand euros). The cost of investments made in 12 months of 2015 in the supermarket business segment w as 4,398 thousand euros. In the reporting period in Torupilli Selver shopping environment w as renew ed and Viimsi Selver w as opened. Also other store fittings w ere renew ed and purchased computing technology. The size of the investment in the business segment of Department store amounted to 2,412 thousand euros. In the reporting period Kaubamaja Food Departments sw itched to modern cash register system and Kaubamaja Beauty Department fittings w ere renew ed. The cost of investments in the accounting period w as 251 thousand euros in the car trade business segment. The cost of investments made in the reporting period in the footw ear segment w as 84 thousand euros. The cost of the real estate business segment investment amounted to 12,837 thousand euros. In August 2015 new Viimsi Shopping and Entertainment Centre w as opened. In the reporting period renovation w orks in Tartu Kaubamaja w ere started during w hich the building’s exterior and interior look w ill be changed. In December property in Rae municipal Peetri w as purchased and reclassified as investment property.
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In the end of 2015 and 2014 Tallinna Kaubamaja Grupp AS companies had no commitments to purchase fixed assets. At the year-end 2015, the fair value of “Land and buildings” and recoverable amount of “Construction in progress” w as assessed. The fair values of “Land and buildings” and the recoverable amounts of buildings under construction (based on the value in use) w ere determined based on management’s judgment, using the estimates of certified independent real estate experts for determining the inputs to be used or the fair value of the items. The discounted cash flow model and market data (comparable transactions, rental income, etc.) w ere both used for determining fair values as w ell as recoverable amounts.
Estimation of fair value of “Land and buildings”
For estimating the value of “Land and buildings” located in Estonia, the valuations of a certified independent real estate expert w ere used in respect of 6 properties in 2015 (2014: 6 properties). The same expert also provided an expert opinion w ith regard to the discount and capitalisation rates in respect of 16 properties (2014: 16 properties). The discount rates used for estimation w ere 8.5% -12% (2014: 8.5% - 12%) depending on the location of the property and the rental grow th rates w ere 1% - 2.5% (2014: 1% - 2.5%). For the purpose of estimating the value of “Land and buildings”, the rental agreements in force have been used for determining the input of the rental price, w hich management believes correspond to the market conditions. For estimating the value of “Land and buildings” located in Latvia, the valuation of a certified independent real estate expert w as used in respect of one property in 2015. For determining the value of three properties of “Land and buildings” located in Latvia as at 31.12.2015, valuation of a certified independent real estate expert w as used w ith regard to the discount and capitalisation rates used. The discount and capitalisation rates compared to 2014 remained unchanged. The valuation w as carried out by applying similar inputs as for the valuation of the other remaining buildings under construction located in Latvia. The discount rate used for valuation w as 10.0% - 12% (2014: 10% - 11.25%) and the grow th rates of rental income w ere 1.0% - 2.5% (2014: 1.0% - 2.5%). Revaluation of „Land and buildings” w as previously performed in 2013. The evaluation of non-current assets has been performed every year. Although, given the situation in global economy and the w ait-and-see attitude of the market w hich both influenced market liquidity and investors` readiness to invest, the management estimated that the values of investment property, land and buildings and construction-in-progress have not changed and therefore no revaluation has been recorded. As a result of valuation, the book value of “Land and buildings” located in Estonia w as not adjusted upw ards. The adjustment dow nw ards in 2015 amounted to 239 thousand euros of “Land and buildings” located in Estonia (in 2014 adjustments w ere not made). As a result of valuation, the book value of “Land and buildings” located in Latvia w as adjusted neither upw ards nor dow nw ards in 2015 and 2014. The follow ing table analyses the non-financial assets carried at fair value, by valuation method. The different levels have been defined as follow s: Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included w ithin level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). The fair value of land and building is determined using valuation techniques. The valuation technique uses observable inputs as much as they are available and uses as little as possible Group Management’s assessments. The land and buildings are classified as level 2 if all significant inputs w hich are basis for determining the fair value are observable. If one or more significant inputs are not based on observable market data, lands and buildings are classified as level 3.
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The Group’s non-financial assets carried at fair value as at 31.12.2015 are classified as level 3.
Fair value at Unobser- Range of Relationship of 31 In thousands of euros Valuation method vable unobservable unobservable inputs to December inputs inputs (eur) fair value 2015
PPE items in Estonia, Discounted cash flow Price per The higher the price per for w hich an expert 18,752 method square 6.3-12.5 square metre, the higher opinion w as provided metre the fair value
PPE items in Estonia, Discounted cash flow Price per The higher the price per for w hich estimates method square square metre, the higher w ere provided by metre the fair value experts in respect of 109,293 7.8-17.7 discount and capitalisation rates
Remaining PPE items Discounted cash flow Price per The higher the price per in Estonia 5,635 method square 9.0 square metre, the higher metre the fair value
PPE items in Latvia, Comparable transactions Price per The higher the price per for w hich an expert 5,199 method, discounted cash square 12.6 square metre, the higher opinion w as provided flow method metre the fair value
PPE items in Latvia Discounted cash flow Price per The higher the price per 7,876 7.1 -13.0 method square square metre, the higher metre the fair value
Total 146,755
The Group’s non-financial assets carried at fair value as at 31.12.2014 are classified as level 3.
Fair value at Unobser- Range of Relationship of 31 In thousands of euros Valuation method vable unobservable unobservable inputs to December inputs inputs (eur) fair value 2014
PPE items in Estonia, 53,584 Discounted cash flow Price per 7.8 – 13.5 The higher the price per for w hich an expert method square square metre, the higher opinion w as provided metre the fair value
PPE items in Estonia, 98,206 Discounted cash flow Price per 7.0 – 18.1 The higher the price per for w hich estimates method square square metre, the higher w ere provided by metre the fair value experts in respect of discount and capitalisation rates
Remaining PPE items 5,944 Discounted cash flow Price per 9.0 The higher the price per in Estonia method square square metre, the higher metre the fair value
PPE items in Latvia 16,210 Discounted cash flow Price per 6.9 – 9.5 The higher the price per method square square metre, the higher metre the fair value
Total 173,944
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Determination of recoverable amounts of buildings under construction In accounting period, for determining the value of buildings under construction located in Estonia, the valuations of a certified independent real estate expert w ere used in respect of 3 items and in 2014 in respect of one item. For valuation purposes, the discount rates used w ere 10.6% (2014: 10.4%) and the grow th rate w as 2.0% (2014: 1.5%). The buildings under construction located in Latvia, the valuations of a certified independent real estate expert w as used in respect of 3 items and the rest objects w ere valued internally, based on the investment value. In 2014 the valuations w ere made internally, based on the investment value. For valuation purposes, the discount rates used w ere 9.0%- 12.5% (2014: 11.3%-12.8%) depending on the location of the item, and the grow th rates w ere 1.0% - 1.5% (2014: 1.0%-1.5%). For determining the investment value, the discounted cash flow method w as used. For determining the rental price and vacancy rate inputs, the rental price of the rental agreement concluded w ith an independent tenant and the vacancy rate of completed items provided by certified experts w ere used. Carrying amounts of buildings under construction:
In thousands of euros 31.12.2015 31.12.2014 PPE items in Estonia, for w hich an expert opinion w as provided 4,248 1,308 Remaining PPE items in Estonia 7,894 14,845 PPE items in Latvia, for w hich an expert opinion w as provided 8,571 0 PPE items in Latvia, for w hich an internal estimate w as provided 7,473 18,316 Remaining PPE items in Latvia 1,688 0 Total 29,874 34,469
Based on the results of valuation in 2015, impairment in the amount of 1,448 thousand euros w as recognised in respect of Estonian buildings under construction and in the amount of 587 thousand euros in respect of Latvian buildings under construction. In 2014, no impairment w as recognised and no previous impairment w as reversed on buildings under construction in Estonia and in Latvia.
Estimation of the recoverable amount of non-current assets
Had the non-current assets been accounted for at cost, the carrying amount of revalued items of property, plant and equipment w ould have been as follow s:
31.12.2015 90,010 thousand euros 31.12.2014 109,173 thousand euros
As at 31.12.2015 the cost of non-current assets in use w ith a zero carrying value w as 26,638 thousand euros (2014: 28,081 thousand euros). As at 31.12.2015, property, plant and equipment w ith the carrying value of 127,303 thousand euros (2014: 159,912 thousand euros) w as used as collateral for the borrow ings. More detailed information is disclosed in Note 25. Information about non-current assets leased under finance lease terms is disclosed in Note 16. As at 31.12.2015 the recoverable amount of the non-current assets of I.L.U. beauty stores (carrying value: 470 thousand euros, in 2014: 699 thousand euros) w as estimated. The recoverable amount is based on the value in use, determined on the basis of the future cash flow forecast for the next 5 years. The average grow th rate of I.L.U. is estimated to be 2.5% in 2016-2020 (2014: 2015 – 2019 is estimated to be 5.0%). In the end of 2015 I.L.U chain ow ned six stores. The sales grow th w as forecast on the basis of Group’s long-term sales experience. The discount rate applied is 8.6% (2014: 6.72%) and the future grow th rate (after year 5) is 2.5%. No impairment loss w as identified as a result of the impairment test.
As at 31.12.2015 the recoverable amount of the non-current assets in footw ear segment w as estimated. No impairment loss w as identified as a result of the impairment test of non-current assets in the carrying value of 710 thousand euros. More detailed data about inputs used see Note 14.
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Note 14 Intangible assets in thousands of euros Develop- Beneficial ment Goodw ill Trademark Total contracts expendi- ture 31.12.2013 Cost 7,298 5,097 1,080 496 13,971 Accumulated amortisation and impairment -588 -1,588 -1,080 -79 -3,335 Carrying value 6,710 3,509 0 417 10,636 Changes occurred in 2014 Purchases and improvements 0 0 0 125 125 Acquired through business combinations (Note 9) 0 175 0 0 175 Amortisation 0 -469 0 -65 -534 31.12.2014 Cost 7,298 5,272 1,080 621 14,271 Accumulated amortisation and impairment -588 -2,057 -1,080 -144 -3,869 Carrying value 6,710 3,215 0 477 10,402 Changes occurred in 2015 Purchases and improvements 0 5 0 539 544 Acquired through business combinations (Note 9) 104 0 0 0 104 Amortisation 0 -486 0 -80 -566 Impairment -1,441 0 0 0 -1,441 31.12.2015 Cost 6,814 5,277 1,080 1,160 14,331 Accumulated amortisation and impairment -1,441 -2,543 -1,080 -224 -5,288 Carrying value 5,373 2,734 0 936 9,043
As a trademark, the Group has recognised the image of ABC King in the amount of 3,509 thousand euros; the image contains a combination of the name, symbol and design together w ith recognition and preference by consumers. Trademark w ill be amortised during 15 years. Trademark at value of 1,588 thousand euros w as acquired in 2012 through purchase of AS Viking Motors shares. Trademark w ill be amortised during 7 years. Trademark at value of 180 thousand euros w as acquired in 2014 through purchase of Viking Security AS shares. Trademark w ill be amortised during 7 years (Note 9).
Impairment tests of goodw ill and other intangible assets w ere carried out as at 31 December 2015 and 2014. Goodw ill is allocated to cash generating units of the Group by the follow ing segments:
in thousands of euros 31.12.2015 31.12.2014 Car trade 3,156 3,156 Footw ear trade 2,113 3,554 Department store 104 0 Total 5,373 6,710
The recoverable amount (based on value in use) w as determined on the basis of future cash flow s for the next five years. In car trade and department store units it w as evident that the present value of cash flow s covers the value of goodw ill and trademark as w ell as beneficial lease agreements and other assets related to the unit. In footw ear trade unit it w as evident that the present value of cash flow s does not cover the value of goodw ill. Accordingly goodw ill in footw ear trade w as adjusted dow nw ards in the amount of 1,441 thousand euros.
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The value in use calculations are based on the follow ing assumptions:
Car trade Footwear trade 31.12.2015 31.12.2014 31.12.2015 31.12.2014 Operating profit margin during next 5 years 4.33% - 4.37% 4.14% - 4.26% -4.6% - 1.1% -1.19% - 5.54% Discount rate 7.1% 7.4% 8.6% 6.7% Sales grow th during next 5 years 3% - 19,2% -4.9% - 5% 3% - 14% 3% -6% Future grow th rate* 2.5% 2.5% 2.5% 2.5%
*Future growth rate is estimated cash flow growth after the fifth year. Pre-tax discount rates reflecting the risks associated w ith the relevant business segment have been used. The used w eighted average grow th rates are based on the experience of the Group and assessment of the economic environment. The most important premises used w hen calculating the value in use are the grow th rate of sales volumes and gross profit margin. Compared to the premises used to evaluate the recoverable amount in 2014, the grow th and margin expectations have been revised upw ards because of the good outlook of the car trade segment. In the footw ear trade segment, the sales grow th expectations have been increased for near future; how ever, taking into account the market situation, the gross profit margin is still under a stronger pressure. In 2015, the car business show ed a grow th of 5.3% (2014: 22.7%). While w e expect to see an increase in sales in 2016 (17.6%), the annual sales grow th w ill stabilise at 3% to 5% per year after that. The five year average sales grow th in the car business is estimated to be 7% (2.2% in 2014). In the footw ear segment, the five year average sales grow th is planned to be 5.8% (2014:3.7%). The gross profit margin used in the footw ear business recoverable amount tests is -0.7% (0.3% in 2014). Management estimates that the assumptions used in the impairment test are realistic and rather conservative. If the follow ing changes w ere to occur in the assumptions used in the impairment test, the recoverable amount w ould equal the carrying amount:
Car trade Footwear trade 31.12.2015 31.12.2014 31.12.2015 31.12.2014 Difference betw een the carrying amount and recoverable amount of the cash generating unit (in 38,437 23,793 0 5,792 thousands of euros) Reasonably possible change in the assumptions, w hich w ould cause the recoverable amount to be equal to the carrying amount: Decrease in the average sales grow th -2.0% -1.4% 0% -0.8% Decrease of the average operating profit margin -2.91 pp -2.48 pp 0 pp -1.94 pp
Note 15 Interest bearing borrowings
in thousands of euros 31.12.2015 31.12.2014 Short-term borrowings Overdraft 2,542 1,599 Bank loans 28,007 15,936 Other borrow ings 2,828 2,870 Total short-term borrowings 33,377 20,405
31.12.2015 31.12.2014 Long-term borrowings Bank loans 56,858 75,269 Other borrow ings 568 2,394 Total long-term borrowings 57,426 77,663 Total borrowings 90,803 98,068
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Borrow ings received
2015 2014 Overdraft 943 1,199 Bank loans 47,224 47,818 Other borrow ings 1,781 4,690 Total borrow ings received 49,948 53,707
Borrowings repaid
2015 2014 Bank loans 53,889 44,207 Other borrow ings 3,325 2,835 Total borrow ings repaid 57,214 47,042
Bank loans and finance lease liabilities are denominated in euros. Information on pledged assets is disclosed in Note 25. Management estimates that the carrying amount of the Group’s financial liabilities does not significantly differ from their f air value (Note 4). As of 31.12.2015, the repayment dates of bank loans are betw een 28.01.2016 and 27.03.2020 (2014: betw een 05.04.2015 and 07.02.2020), interest is tied both to 3-month and 6-month EURIBOR as w ell as EONIA. Weighted average interest rate w as 1.14% (2014: 1.2%).
Note 16 Finance and operating lease
Group is the lessee – operating lease agreements Operating lease expenses include the costs for leasing retail premises. Information about the rental expenses in the reporting period is disclosed in Note 21.
Future minimum lease payments under non-cancellable operating leases:
in thousands of euros 31.12.2015 31.12.2014 due in less than 1 year 22,164 22,155 due betw een 1 and 5 years 79,291 81,879 due after 5 years 85,716 91,348 Total 187,171 195,382
Future minimum lease payments under non-cancellable operating leases have been calculated taking into consideration non-cancellable periods of lease agreements and the grow th of lease payments according to the terms and conditions set in agreements. Operating lease agreements do not specify purchase options. Operating lease agreements contain a clause that rental prices are review ed once a year according to the market situation or rental prices increase according to the percentage set in contracts.
The lease agreements of the Group as the lessee form the basis for one of its core activities – operation of stores. Therefore, the Group assumes that it w ill not terminate its lease agreements even if the conditions of agreements allow it under certain circumstances prior to the expiry of the agreement. Due to this, all lease agreements concluded for a specified term have been considered as non-cancellable agreements.
Subleases of buildings leased under operating lease terms:
Future minimum lease payments under non-cancellable subleases:
in thousands of euros 31.12.2015 31.12.2014 due in less than 1 year 2,175 1,996 due betw een 1 and 5 years 6,158 6,189 due after 5 years 5,169 5,026 Total 13,502 13,211
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Group as the lessor Operating lease
Rental income received consists of income received for the leasing out of premises.
Future minimum lease payments under non-cancellable operating leases (other than the sublease payments mentioned above):
in thousands of euros 31.12.2015 31.12.2014 due in less than 1 year 2,142 2,422 due betw een 1 and 5 years 7,733 5,009 Total 9,875 7,431
Most lease agreements have been concluded for the term of 7 to 10 years and the changes in lease term and conditions are renegotiated before the end of the lease term. Lease agreements w ith no specified term are expected to be valid for at least 5 years from the conclusion of the agreement and are cancellable w ith a 1-3 month advance notice.
Note 17 Trade and other payables in thousands of euros
31.12.2015 31.12.2014 Trade payables 57,901 52,982 Payables to related parties (Note 26) 4,579 4,913 Other accrued expenses 79 60 Prepayments by tenants 1,944 1,613 Total financial liabilities from balance sheet line 64,503 59,568 “Trade and other payables” Taxes payable (Note 18) 6,284 5,797 Employee payables 4,944 3,868 Prepayments 1,215 953 Short-term provisions* 120 131 Total trade and other payables 77,066 70,317 *Short-term provisions represent w arranty provisions related to footw ear trade.
Note 18 Taxes in thousands of euros
31.12.2015 31.12.2014 Prepaid tax- Taxes Prepaid tax- Taxes
es payable es payable Prepaid taxes (Note 6) 9 0 130 0 Value added tax 0 3,014 0 2,719 Personal income tax 0 943 0 881 Social security taxes 0 2,017 0 1,880 Corporate income tax 0 67 0 81 Unemployment insurance 0 137 0 140 Mandatory funded pension 0 106 0 96 Total taxes 9 6,284 130 5,797
Group’s deferred income tax asset as at 31 December 2015 and 31 December 2014 is disclosed in note 11. As at 31 December 2015 and 31 December 2014 the Group did not have deferred income tax liabilities.
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in thousands of euros
2015 2014
Corporate income tax expense from payments to ow ners: - Dividends declared (Note 19) 3,873 1 324 - Reduction of share capital (Note 19) 0 1 012 Corporate income tax expense arising from foreign subsidiaries: - Deferred tax income 0 -147
- Corporate income tax payable 10 5 Total corporate income tax 3,883 2 194
Note 19 Share capital
As at 31.12.2015, the share capital in the amount of 16,292 thousand euros consisted of 40,729,200 ordinary shares w ith the nominal value of 0.40 euros per share (as at 31.12.2014 the share capital in the amount of 16,292 thousand euros consisted of 40,729,200 ordinary shares w ith the nominal value of 0.40 euros per share). All shares issued have been paid for. According to the articles of association, the maximum allow ed number of shares is 162,916,800 shares.
In 2015, dividends w ere declared and paid to the shareholders in the amount of 16,292 thousand euros, or 0.40 euros per share (2014: 6,109 thousand euros, 0.15 euros per share). Related income tax on dividends amounted to 3,873 thousand euros (2014: 1,324 thousand euros). In July, 2014, the reduction of share capital of Tallinna Kaubamaja Grupp AS in the amount of 8,146 thousand euros w as registered in the Commercial Register. The new registered share capital of Tallinna Kaubamaja Grupp AS is 16,291,680 euros, w hich is divided into 40,729,200 shares w ith nominal value of 0.40 euros per share. In October, 2014 payments to the shareholders upon a reduction of share capital w ere made in the amount of 8,146 thousand euros, 0.20 euros per share. Related income tax expense amounted to 1,012 thousand euros. Information about contingent income tax liability w hich w ould arise from the distribution of profit is disclosed in Note 29.
Note 20 Segment reporting
The Group has defined the business segments based on the reports used regularly by the supervisory board to make strategic decisions. The chief operating decision maker monitors the Group’s operations by activities. With regard to areas of activity, the operating activities are monitored in the department store, supermarket, real estate, car trade, footw ear trade, beauty products (I.L.U.) and security segments. The measures of I.L.U. and security segment are below the quantitative criteria of the reporting segment specified in IFRS 8; these segments have been aggregated w ith the department store segment because they have similar economic characteristics and are similar in other respects specified in IFRS 8. The main area of activity of department stores, supermarkets, footw ear trade and car trade is retail trade. Supermarkets focus on the sale of food products and convenience goods, the department stores on the sale of beauty and fashion products, the car trade on the sale of cars and spare parts. In the car trade segment, cars are sold at w holesale prices to authorised car dealers. In the footw ear trade segment, footw ear is sold at w holesale prices to family supermarkets. The share of w holesale trade in other segments is insignificant. The real estate segment deals w ith the management and maintenance of real estate ow ned by the Group, and w ith the rental of commercial premises. The activities of the Group are carried out in Estonia, Latvia and Lithuania. The Group operates in all the five operating segments in Estonia. The Company is engaged in car trade and real estate development in Latvia; and in car trade in Lithuania. The disclosures of financial information correspond to the information that is periodically reported to the Supervisory Board. Measures of income statement, segment assets and liabilities have been measured in accordance w ith accounting policies used in the preparation of the financial statements. Main measures that Supervisory Board monitors are segment revenue (external segment and inter-segment revenue), EBITDA (earnings before interest, taxes, depreciation and amortisation) and net profit or loss.
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in thousands of euros Inter- Depart- segment Total Super ment Footw ear Real transact- seg- 2015 markets store Car trade trade estate ions ments External revenue 383,441 95,581 60,765 11,933 3,727 0 555,447 Inter-segment revenue 1,024 5,267 29 217 12,228 -18,765 0 Total revenue 384,465 100,848 60,794 12,150 15,955 -18,765 555,447 EBITDA 14,543 6,136 2,971 -398 18,926 0 42,178
Depreciation and amortisation (Note -4,049 -1,946 -751 -2,080 -6,408 0 -15,234 13, 14) Operating profit/loss 10,494 4,190 2,220 -2,478 12,518 0 26,944 Finance income (Note 23) 297 666 33 1 150 -1,135 12 Finance income on shares of 0 142 0 0 0 0 142 associates Finance costs (Note 23) -30 -570 -250 -160 -1,269 1,135 -1,144 Corporate income tax* (Note 19) -2,222 -1,150 -511 0 0 0 -3,883 Net profit/loss 8,539 3,278 1,492 -2,637 11,399 0 22,071 incl. in Estonia 10,899 3,278 1,532 -2,637 10,510 0 23,582 incl. in Latvia -2,360 0 -90 0 889 0 -1,561 incl. in Lithuania 0 0 50 0 0 0 50 Segment assets 87,311 53,497 23,912 8,542 226,884 -52,166 347,980 Segment liabilities 60,742 17,286 16,519 10,309 98,584 -35,069 168,371 Segment investment in non-current 4,886 2,468 251 84 12,837 0 20,526 assets (Note 13, 14) in thousands of euros Inter- Depart- segment Total Super ment Footw ear Real transact- seg- 2014 markets store Car trade trade estate ions ments External revenue 368,159 92,525 57,692 13,358 3,311 0 535,045 Inter-segment revenue 947 4,261 26 433 11,924 -17,591 0 Total revenue 369,106 96,786 57,718 13,791 15,235 -17,591 535,045 EBITDA 11,399 6,283 2,753 -328 14,650 0 34,757
Depreciation and amortisation (Note -3,610 -1,836 -464 -678 -4,382 0 -10,970 13, 14) Operating profit/loss 7,789 4,447 2,289 -1,006 10,268 0 23,787 Finance income (Note 23) 338 777 48 1 57 -1,197 24 Finance income on shares of 0 172 0 0 0 0 172 associates Finance costs (Note 23) -45 -581 -298 -271 -1,496 1,197 -1,494 Corporate income tax* (Note 19) -366 -1,439 -389 0 0 0 -2,194 Net profit/loss 7,716 3,376 1,650 -1,276 8,829 0 20,295 incl. in Estonia 10,145 3,376 1,626 -1,276 7,991 0 21,862 incl. in Latvia -2,429 0 2 0 838 0 -1,589 incl. in Lithuania 0 0 22 0 0 0 22 Segment assets 85,027 59,476 20,357 11,300 214,015 -47,268 342,907 Segment liabilities 58,107 21,841 12,656 12,080 96,213 -31,820 169,077 Segment investment in non-current 2,944 1,992 608 590 2,973 0 9,107 assets (Note 13, 14)
*- corporate income tax is allocated based on w hich subsidiary bears income tax expense on distribution of dividends.
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Inter-segment transactions in line segment assets comprise inter-segment receivables in the amount of 3,526 thousand euros (2014: 3,413 thousand euros), loans granted in the amount of 31,543 thousand euros (2014: 28,407 thousand euros) and investments in subsidiaries in the amount of 17,098 thousand euros (2014: 15,448 thousand euros).
Inter-segment transactions in line segment liabilities comprise inter-segment short-term liabilities in the amount of 3,526 thousand euros (2014: 3,413 thousand euros) and inter-segment borrow ings in the amount of 31,543 thousand euros (2014: 28,407 thousand euros). External revenue according to types of goods and services sold in thousands of euros 2015 2014 Retail revenue 512,260 497,778 Wholesale revenue 20,061 17,982 Rental income 7,827 7,258 Revenue for rendering services 15,299 12,027 Total revenue 555,447 535,045
External revenue by client location in thousands of euros 2015 2014 Estonia 533,329 512,109 Latvia 14,868 16,307 Lithuania 7,250 6,629 Total 555,447 535,045
Distribution of non-current assets* by location of assets in thousands of euros 31.12.2015 31.12.2014 Estonia 216,439 206,480 Latvia 34,410 35,054 Lithuania 141 155 Total 250,990 241,689
* Non-current assets, other than financial assets and investment in associate.
In the reporting period and comparable period, the Group did not have any clients w hose share of Group’s revenue w ould exceed 10%.
Note 21 Other operating expenses in thousands of euros
2015 2014 Rental expenses 15,393 15,187 Heat and electricity expenses 8,288 8,425 Operating costs 6,301 6,311 Cost of services and materials related to sales 5,921 5,768 Marketing expenses 6,302 6,750 Miscellaneous operating expenses 3,066 2,882 Computer and communication costs 3,397 3,015 Personnel expenses 2,108 1,689 Total other operating expenses 50,776 50,027
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Note 22 Staff costs in thousands of euros
2015 2014 Wages and salaries 38,295 34,907 Social security taxes 12,595 11,586 Total staff costs 50,890 46,493 Average w ages per employee per month (euros) 809 761 Average number of employees in the reporting period 3,946 3,824 Staff costs also include accrued holiday pay as w ell as bonuses and termination benefits for 2015 but not yet paid.
Note 23 Finance income and costs in thousands of euros
Finance income 2015 2014
Interest income on NGI Group’s group account 5 23 (Note 26) Other finance income 7 1 Total finance income 12 24
Finance costs 2015 2014 Interest expense of bank loans -997 -1,242 Interest expense of other loans -39 -59 Other finance costs* -108 -193 Total finance costs -1,144 -1,494
* Other finance costs consist of the fees for conclusion and changing of lease agreements and factoring agreements.
Note 24 Earnings per share
For calculating the basic earnings per share, the net profit to be distributed to the Parent’s shareholders is divided by the w eighted average number of ordinary shares in circulation. As the Company does not have potential ordinary shares, the diluted earnings per share equal basic earnings per share.
2015 2014 Net profit (in thousands of euros) 22,071 20,295 Weighted average number of shares 40,729,200 40,729,200
Basic and diluted earnings per share (euros) 0.54 0.50
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Note 25 Loan collateral and pledged assets
The loans of Group entities have the follow ing collateral w ith their carrying amounts: in thousands of euros
31.12.2015 31.12.2014 Land and buildings 123,534 155,247 Other non-current assets 3,769 4,665 Investment property 26,756 0 Inventories 3,703 4,376 Financial assets 211 189
As at 31 December 2015 land and buildings in carrying value of 127,303 thousand euros (as at 31.12.2014 carrying value of 159,912 thousand euros) and investment property in carrying value of 26,756 thousand euros (31.12.2014: zero euros) w as mortgaged. Inventories at balance sheet value of 3,703 thousand euros (as at 31.12.2014 at balance sheet value of 4,376 thousand euros) and financial assets at balance sheet value of 211 thousand euros (as at 31.12.2014 at balance sheet value of 189 thousand euros) w ere set under commercial pledge.
Note 26 Related party transactions in thousands of euros
In preparing the consolidated annual report of Tallinna Kaubamaja Grupp AS, the follow ing parties have been considered as related parties: a. ow ners (Parent and the persons controlling or having significant influence over the Parent); b. associates; c. other entities in the Parent’s consolidation group. d. management and supervisory boards of Group companies; e. immediate family member of the persons described above and the entities under their control or significant influence.
Parent company of Tallinna Kaubamaja Grupp AS is OÜ NG Investeeringud (Parent). Majority shareholder of OÜ NG Investeeringud is NG Kapital OÜ. NG Kapital OÜ is the ultimate controlling party of Tallinna Kaubamaja Grupp AS.
The Group has purchased and sold goods, services and non-current assets as follow s: Purchases Purchases Sales 2015 Sales 2014 2015 2014 Parent 322 19 328 34 Entities in the Parent’s consolidation group 27,365 7,495 26,420 6,614
Members of management and supervisory boards 16 5 0 0
Other related parties 943 100 923 190
Total 28,646 7,619 27,671 6,838
A major part of the purchases from the entities in the Parent’s consolidation group is made up of goods purchased for sale. Purchases from the Parent are mostly made up of management fees. Sales to related parties are mostly made up of services provided.
Balances w ith related parties: 31.12.2015 31.12.2014 Interest receivable from Parent (Note 7) 1 9 Receivable from Parent (Note 6) 5,000 4,000 Receivables from entities in the Parent’s consolidation 1,016 729 group (Note 7) Members of management and supervisory boards (Note 10 10 7) Total receivables from related parties 6,027 4,748
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31.12.2015 31.12.2014 Parent 0 21 Entities in the Parent’s consolidation group 4,463 4,724 Other related parties 116 168 Total liabilities to related parties (Note 17) 4,579 4,913
Receivables from and liabilities to related parties are unsecured and carry no interest because they have regular payment terms except receivable from the group account.
Group account For arranging funding for its subsidiaries, the Group uses the group account, the members of w hich are most of the Group’s entities. In its turn, this group as a subgroup is a member of the group account of NG Investeeringud OÜ (hereinafter head group). From autumn 2001, Tallinna Kaubamaja Grupp AS has been keeping its available funds at the head group account, earning interest income on its deposits. In 2015, the Group earned interest income on its deposits of available funds in the amount of 5 thousand euros (2014: 23 thousand euros). As at 31 December 2015 Tallinna Kaubamaja Grupp AS deposited through parent company NG Investeeringud OÜ 5,000 thousand euros (31.12.2014: 4,000 thousand euros). Deposit matures on 26.01.2016 w ith interest rate of 0,4%. As at 31.2.2014 the deposit in the amount of 2,000 thousand euros w ith interest rate 0.18% maturity up to 5 January 2015 and deposit in the amount of 2,000 thousand euros w ith interest rate 0.20% maturity up to 6 January 2015. In 2015 the group has not deposited neither used available funds of NG Investeeringud OÜ nor paid any interest for using available funds of NG Investeeringud OÜ. In 2014 the average interest rate on available funds deposited to the group account of NG Investeer- ingud OÜ w as 0.07% in the euro account. According to the group account contract, the Group’s members are jointly responsible for the unpaid amount to the bank.
Remuneration paid to the members of the Management and Supervisory Board Short term benefits to the management boards’ members of the companies belonging to Tallinna Kaubamaja Grupp AS for the reporting year including w ages, social security taxes, bonuses and car expenses, amounted to 1,412 thousand euros (2014: 1,208 thousand euros, including termination benefits in the amount of 50 thousand euros). Short term benefits to supervisory boards’ members of the companies belonging to Tallinna Kaubamaja Grupp AS in reporting year including social taxes amounted to 321 thousand euros (2014: 310 thousand euros). The termination benefits for the members of the Management Board are limited to 3- month’s salary expense.
Note 27 Interests of the members of the Management and Supervisory Board
As at 31.12.2015, the follow ing members of the Management and Supervisory Board ow n or represent the shares of Tallinna Kaubamaja Grupp AS:
Andres Järving Represents 4,795,909 (11.78%) shares of Tallinna Kaubamaja Grupp AS Jüri Käo Represents 4,768,606 (11.71%) shares of Tallinna Kaubamaja Grupp AS Enn Kunila Represents 4,692,346 (11.52%) shares of Tallinna Kaubamaja Grupp AS Raul Puusepp Ow ns 10,002 (0,0246%) shares of Tallinna Kaubamaja Grupp AS
As at 31.12.2014, the follow ing members of the Management and Supervisory Board ow n or represent the shares of Tallinna Kaubamaja Grupp AS:
Andres Järving Represents 4,795,909 (11.78%) shares of Tallinna Kaubamaja Grupp AS Jüri Käo Represents 4,768,606 (11.71%) shares of Tallinna Kaubamaja Grupp AS Enn Kunila Represents 4,692,346 (11.52%) shares of Tallinna Kaubamaja Grupp AS Raul Puusepp Ow ns 10,002 (0,0246%) shares of Tallinna Kaubamaja Grupp AS
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Note 28 Shareholders w ith more than 5% of the shares of Tallinna Kaubamaja AS
31.12.2015 31.12.2014 Shareholders Ownership interest Ownership interest OÜ NG Investeeringud (Parent) 67.00% 67.00% ING Luxembourg S.A. 6.92% 6.92%
As at 31 December 2015, 68.75% of the shares (31 December 2014: 68.75%) of NG Investeeringud OÜ are ow ned by NG Kapital OÜ w hich is the ultimate controlling party of Tallinna Kaubamaja Grupp AS.
Note 29 Contingent liabilities Contingent liability relating to income tax on dividends As of 31 December 2015, the retained earnings of Tallinna Kaubamaja Grupp AS w ere 95,268 thousand euros (31 December 2014: 88,031 thousand euros). Payment of dividends to ow ners is accompanied by income tax expense 20/80 on the amount paid as net dividends (until 31.12.2014 income tax expense w as 21/79 on the amount paid as net dividends). Hence, of the retained earnings existing as of the balance sheet date, the ow ners can be paid 76,214 thousand euros as dividends (31 December 2014: 70,425 thousand euros) and the payment of dividends w ould be accompanied by income tax on dividends in the amount of 19,054 thousand euros (31 December 2014: 17,606 thousand euros).
Contingent liabilities relating to bank loans Regarding the loan agreements in the amount of 46,604 thousand euros, the borrow er is required to satisfy certain financial ratios such as debt to EBITDA (EBITDA – earnings before interest, taxes, depreciation and amortisation) or debt-service coverage ratio (DSCR or EBITDA for the reporting period divided by borrow ings payable in the reporting period) pursuant to the terms and conditions of the loan agreement. As of the balance sheet date, 31 December 2015, there w as a breach in the levels established for financial covenants in the one loan agreement, thus repayment of named loan falls into 2016 and therefore has recorded as current liability in the balance sheet.
Contingent liabilities relating to the Tax Board
The tax authorities may at any time inspect the books and records of the Group w ithin 5 years subsequent to the reported tax year, and may as a result of their inspection impose additional tax assessments and penalties. In 2014 and 2015 the tax authority did not conduct any tax audits. The management of the Group is not aw are of any circumstances w hich may give rise to a potential material liability in this respect.
Contingent liabilities relating to the court-hearings
With judgement dated 20 January 2016 in case no. 1-14-3730 Tallinn Circuit Court acquitted Selver AS and its former employee Tiiu Valk on all charges and earlier conviction by the court of first instance. Selver AS w as aw arded costs for legal assistance. Office of the Prosecutor General has on 3 February 2016 filed an appeal against court ruling to the Supreme Court and thus the judgement of Tallinn Circuit Court has not yet entered into force. Subsequently the Supreme Court shall decide w hether to accept or to reject the appeal of the Prosecutor General against court ruling. On 29 April 2014, Tallinna Kaubamaja Grupp AS released a stock exchange notification regards the prosecution of its subsidiary, Selver AS and on 29 April 2015 a stock exchange notification regarding judgement of conviction by Harju County Court. Selver AS challenged the judgement of Harju County Court in full at the circuit court. According to the charge, Selver AS, Rimi Eesti Food AS, Maxima Eesti OÜ, Prisma Peremarket AS, AS Helter-R and AS Liviko agreed on raising the retail price on certain vodkas in 2009, and the companies w ere accused of committing a crime specified in Subsection 400 (4) of the Penal Code. Selver AS has regarded the prosecutor’s accusation unfounded and unreasonable during the entire course of the proceedings, because Selver AS has never made any price agreements w ith the competing companies.
Note 30 Financial information of the Parent
In accordance w ith the Accounting Act of Estonia, the separate primary statements of the consolidating entity (Parent’s statement of financial position, statement of profit or loss and other comprehensive income, cash flow statement and statement of changes in equity). The Parent’s primary statements are prepared using the same accounting methods and measurement bases as those that have been used for preparing the consolidated financial statements except for investment in subsidiaries and associates that are carried at equity method.
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 61 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
STATEMENT OF FINANCIAL POSITION in thousands of euros 31.12.2015 31.12.2014 01.01.2014 adjusted adjusted ASSETS Current assets Cash and cash equivalents 201 1,211 3,873 Trade and other receivables 7,933 7,439 17,207 Total current assets 8,134 8,650 21,080 Non-current assets Shares of subsidiaries 193,563 174,682 154,120 Share of associates 1,778 1,778 1,711 Long-term trade and other receivables 9,000 0 0 Property, plant and equipment 131 354 333 Intangible assets 392 411 410 Total non-current assets 204,864 177,225 156,574 TOTAL ASSETS 212,998 185,875 177,654
LIABILITIES AND EQUITY Current liabilities Borrow ings 17,283 1,821 1,788 Trade and other payables 997 770 728 Total current liabilities 18,280 2,591 2,516
Non-current liabilities Borrow ings 0 4,541 6,363 Total non-current liabilities 0 4,541 6,363 TOTAL LIABILITIES 18,280 7,132 8,879
Equity Share capital 16,292 16,292 24,438 Statutory reserve capital 2,603 2,603 2,603 Retained earnings 175,823 159,848 141,734 TOTAL EQUITY 194,718 178,743 168,775 TOTAL LIABILITIES AND EQUITY 212,998 185,875 177,654
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 62 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIV E INCOME in thousands of euros 2015 2014
adjusted Revenue 2,809 2,506 Other operating income 55 14
Other operating expenses -484 -515 Staff costs -2,336 -1,960 Depreciation, amortisation and impairment -140 -136 Other expenses -17 -44 Operating loss -113 -135 Interest income and expenses 163 183 Other finance income and costs 32,217 25,187 Total finance income and costs 32,380 25,370 Profit before income tax 32,267 25,235 Income tax expense 0 -1,012 NET PROFIT FOR THE FINANCIAL YEAR 32,267 24,223 TOTAL COMPREHENSIV E INCOME FOR THE 32,267 24,223 FINANCIAL YEAR
Basic and diluted earnings per share (euros) 0.79 0.59
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 63 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
CASH FLOW STATEMENT in thousands of euros 2015 2014
adjusted CASH FLOWS FROM/USED IN OPERATING ACTIVITIES
Net profit 32,267 24,223 Adjustments: Interest expense 587 623 Interest income -750 -807 Effect of equity method -32,217 -25,187 Corporate income tax 0 1,012 Dividend received 140 136 Change in receivables and prepayments related to -460 -491 operating activities Change in liabilities and prepayments related to operating 226 42 activities TOTAL CASH FLOWS FROM/USED IN OPERATING -207 -449 ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment -27 -98 Interest received 750 807 Change in the receivable of group account 11,393 10,636 Investments in subsidiaries -1,680 -455 Loans granted to subsidiaries -9,000 -1,500 Purchases of intangible assets -51 -62 Proceeds from sale of property, plant and equipment 180 3 Dividends received 16,332 6,134 TOTAL CASH FLOWS FROM INVESTING ACTIVITIES 17,897 15,465
CASH FLOWS USED IN FINANCING ACTIVITIES
Repayments of borrow ings -1,821 -1,788 Interest paid -587 -623 Dividends paid -16,292 -6,109 Reduction of share capital 0 -8,146 Corporate income tax paid 0 -1,012 TOTAL CASH FLOWS USED IN FINANCING -18,700 -17,678 ACTIVITIES
TOTAL CASH FLOWS -1,010 -2,662
Cash and cash equivalents at beginning of the period 1,211 3,873 Cash and cash equivalents at end of the period 201 1,211 Net increase/decrease in cash and cash equivalents -1,010 -2,662
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 64 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
STATEMENT OF CHANGES IN EQUITY in thousands of euros Statutory Retained Share capital reserve Total earnings capital Balance as of 31.12.2013 24,438 2,603 16,381 43,422 Adjustment 0 0 125,353 125,353 Adjusted balance as of 31.12.2013 24,438 2,603 141,734 168,775 Dividends paid 0 0 -6,109 -6,109 Profit for the reporting period 0 0 24,223 24,223 Reduction of share capital -8,146 0 0 -8,146 Adjusted balance as of 31.12.2014 16,292 2,603 159,848 178,743 Dividends paid 0 0 -16,292 -16,292 Profit for the reporting period 0 0 32,267 32,267 Balance as of 31.12.2015 16,292 2,603 175,823 194,718
Tallinna Kaubamaja Grupp AS Consolidated Annual Report 2015 (translation of the Estonian original) 65 WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
INDEPENDENT AUDITOR’S REPORT
(Translation of the Estonian original)
To the Shareholders of Tallinna Kaubamaja Grupp AS
We have audited the accompanying consolidated financial statements of Tallinna Kaubamaja Grupp AS and its subsidiaries, which comprise the consolidated statement of financial position as of 31 December 2015 and the consolidated statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and notes comprising a summary of significant accounting policies and other explanatory information.
Management Board’s Responsibility for the Consolidated Financial Statements
Management Board is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the Management Board determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation o f the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
AS Pricew aterhouseCoopers, Pärnu mnt 15, 10141 Tallinn, Estonia ; License No. 6; Registry code: 10142876 T: +372 614 1800, F: +372 614 1900, w ww.pwc.ee WorldReginfo - 094ccfb1-960c-44f4-9029-294bde7cb05f
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Tallinna Kaubamaja Grupp AS and its subsidiaries as of 31 December 2015, and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.
AS PricewaterhouseCoopers
Ago Vilu Eva Jansen-Diener Auditor’s Certificate No. 325 Auditor’s Certificate No. 501
25 February 2016
This version of our report is a translation from the original, which was prepared in Estonian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation. This independent auditor's report (translation of the Estonian original) should only be used with an annual report initialled for identification purposes by AS PricewaterhouseCoopers.
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PROFIT ALLOCATION PROPOSAL
The retained earnings of Tallinna Kaubamaja Group AS are:
Total retained earnings 31 December 2015 95,268 thousand euros
The Chairman of the Management Board of Tallinna Kaubamaja Group AS proposes to the General Meeting of Shareholders to pay dividends in the amount of 21,179 thousand euros out of retained earnings accumulated until 31 December 2015.
Tallinn,1. March 2016
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REVENUE ALLOCATION ACCORDING TO THE ESTONIAN CLASSIFICATION OF ECONOMIC ACTIVITIES (EMTAK)
The revenue of the Group’s Parent is allocated according to the EMTAK codes as follow s: in thousands of euros per year EMTAK code Title of EMTAK Group 2015
64201 Holding company’s activities 2,809
Total revenue 2,8092,485
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